Cash for the Climate

Edward Glaeser (over at the Economix blog) and I are doing a few posts on the high-speed rail (HSR) component of the economic stimulus package (find the first post here).

“A turnover of this magnitude has approximately the same impact as magically turning the average passenger car on the road into a Prius.”

HSR promises to reduce carbon emissions, but so does the other hot transportation policy at the moment, Cash for Clunkers (CFC). Under CFC the federal government is providing rebates to consumers who trade in their vehicles for new ones that get better gas mileage. Which program is the more effective way to cool down the ice caps while heating up the economy?

First, unlike most of the stimulus spending, CFC is targeted directly at one of our most distressed industries (the auto sector) and at our most distressed state (Michigan). Moreover, CFC is providing stimulus right now, when we really need it.

HSR is not geographically targeted; backers have proposed routes across the country, watering down the benefits for the most hard-hit areas (the industrial Midwest, the West Coast, and the Southeast). Some, though not necessarily all, of the proposed HSR lines don’t make much sense economically or in transportation terms, but casting the geographic net broadly will certainly help with securing support in Congress.

As for the speed of the impact, HSR will provide timely employment for planners, surveyors and engineers. But construction will not commence in earnest until after years of planning. This time lag before the dirt finally flies and the construction jobs materialize makes it curious that HSR was bundled with the stimulus package at all. Remember all the emphasis on “shovel-readiness” with the other transportation elements of the stimulus?

Second, CFC is going to save us lots of fuel, starting today. The average vehicle being traded in gets about 15.8 miles per gallon (6.33 gallons per hundred miles), and the average new vehicle that replaces it gets about 25.4 m.p.g. (3.94 gallons/100 miles). A turnover of this magnitude has approximately the same impact as magically turning the average passenger car on the road into a Prius. (See my post on the efficacy of getting the worst gas guzzlers off the road here.

HSR, on the other hand, would probably benefit the environment in the long haul. But the effect might be disappointing. See Glaeser’s new post on the environmental benefits of HSR here. He finds the environmental savings are real but are comparatively modest next to the system’s cost. Moreover, he does not consider emissions from the system’s construction (see this). Because of construction emissions and the considerable amount of time the HSR program will need to gear up, HSR’s greenhouse savings will not be felt for years or, perhaps, decades. The long time horizon doesn’t necessarily mean that the enterprise isn’t worth undertaking. But my hope is that we can meaningfully cut emissions before U.C.L.A. is underwater.

There is always the chance that the ridership for HSR might prove disappointing. CFC, on the other hand, has had a demonstrated, enthusiastic response from consumers. (Cars have been flying out of the lots and three months’ funding for the program ran out in one week, though admittedly the response from consumers is slowing.)

CFC largely pays for itself, at least in the net. The average customer will reap an estimated $700 to $1,000 dollars per year in reduced fuel costs. At that rate, society will have achieved a net direct benefit (not even counting the environmental pluses) by the time the lifetime of the car ends. Who can’t get behind a pro-environment program that actually makes society money instead of costing us?
On the other hand, even HSR backers admit that the lion’s share of the cost of building the system will never be recovered at the farebox. Capital costs per rider are dauntingly high: see Glaeser’s post on the direct benefits and costs of HSR here. The system may not even reap an operating profit: Amtrak requires a subsidy of $2.6 billion/year.

This is not to say CFC is a perfect program. After the initial stampede, consumer interest is starting to wane. Only a small number of people will benefit. The program rewards those who behaved badly (bought gas guzzlers) in the past, while those who were virtuous miss out. Hope that the program will be repeated in the future may actually persuade people to hold onto their gas guzzlers longer than they would have otherwise. Finally, it’s an open question as to how long the clunkers would have stayed on the road without the intervention. Would they have clunked along for years, or were they about to hit the scrap heap anyway?

Still, the pluses of CFC outweigh the minuses. A little green (so far the program has received $3 billion) is going to mean a lot of green behavior.

And HSR? The prospects are not as bright.

Admittedly, HSR has some benefits that CFC doesn’t. HSR may influence land use patterns for the better and promote economic development (Glaeser will quantify these benefits next week). HSR would build American competence in a futuristic technology. It would improve road safety (so will CFC, since it will put cars with the latest safety features on the road). HSR will also ameliorate congestion (see Glaeser for a dollar figure for this benefit).

Finally, HSR will relieve pressure on our transportation infrastructure, particularly the airports. (Although even if HSR isn’t built there is nothing requiring us to build new runways; we can cope by raising ticket prices or flying bigger planes instead.)

Let’s wait till next week to see Glaeser’s fourth and final post, when he will get to the bottom line. Hopefully when all the numbers are in we’ll find we’re not on the verge of shelling out a lot of cash for a policy clunker.

(Thanks to the University of Minnesota’s David Levinson for thoughtful comments on this post, though the opinions (and any possible errors) are my own.)

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  1. robu says:

    As a stimulus for the auto industry, the CFC would have to actually cause production to go up. Based on what I see at the Michigan supplier plants, it isn’t happening. Dealers are using this as a way of reducing bloated inventories.

    And I agree with caseynshan, in my limited exposure to people who actually used CFC, the trade in vehicles were not used often. My neighbor traded in his pickup that he only used to haul lumber on weekends or pull his trailer up north to campgrounds. He bought a new crossover. His plan is to drive the crossover and use his old Escort less unless “Gas gets too high again”. Let’s look at the score here: replaced high mileage daily driver with lower mileage daily driver (-1) and did not cause assembly plant in state to rehire laid off workers (-1).

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  2. Philippe says:

    As Kevin says, the answer is simply to take your car, then a plane, and have a look at Europe, or Japan, or even India…
    As surprising as it sounds, in these places you can actually live without owning a car. But as Kevin also mentionned, for that you need a real policy that includes both long distance and short distance public transportation, from cities to cites AND from districts/suburbs to disctricts/suburbs.

    I live in a big european city, do not own a car, have a bike and/or a subway/bus within the city, and grb a train whenever i move for the week-end (which happens almost every week-end). That being said, there lies the issue of density of population : the US is so large that it’ll be centuries before having a real alternative to cars…


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  3. jacob says:

    Why not make clunkers a 2 tier system. if a car gets 14-18 miles it can be resold as a used car if a super clunker is traded in instead

    A super clunker a car getting at least 5 MPG less than the clunker and with at least 50,000 less miles.

    This would also help out the people with the worst cars that can’t afford a new one even with a rebate

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  4. Andrew McKeon says:

    One of the aspects of HSR that CFC does not enable is something called TOD – or Transit Oriented Development. The idea behind TOD is that a good mass transit network will enable other “postive externalities” as economists like to say. These consequences can include building communities with reduced air pollution, congestion, and increased foot-traffic on the streets. Folks don’t have to live in their cars, they can walk to the shops, hop on a tram to go to the movies or to the office. I just returned from a trip to Portland Oregon whose city elders made a commitment to transit 20 years ago, and the fruits of that commitment can be seen today in a vibrant, people populated city center without gridlock or sprawl. As I was waiting for the Tri-Met Light Rail to take me to the airport (for $2.30) I struck up a conversation with a gentleman standing next to me. He said he owned a car and a motorcycle but he always used the light-rail because “you can’t beat it for convenience and cost.”

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  5. John Doe says:

    We know you dont support trains. But the article you cite is just a joke.

    Unfortunately in the US the economists are very influent. In Europe and Japan, they dont care too much about economists.

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  6. cirby says:

    Net gas savings from Cash for Clunkers, if people act like they always have when given higher-mileage cars?

    None. Every once in a while, someone keeps track of driving patterns of people who buy newer, higher mileage car, and they find that people increase the amount of miles driven – the limiter for most folks is “how much can I spend on gas this week,” not “how many miles do I need to drive?”

    So no. Overall, the program won’t do much except expend a few billion dollars, shove a few cars off the lots somewhat faster (sales are apparently collapsing as we speak – people waited for the CfC program to kick in to buy cars, then went back to below-normal buying patterns), and increase the future US debt.

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  7. charles says:

    Terrible miss on some basic unintended consequences of the CFC program. With the breadth of the rest I would have thought a 10 min brainstorm of possible negations might have been in order…or is it that you want CFC to be something it’s not?

    Poster 1 nailed the first issue, and it’s one I’m seeing first hand.

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  8. Sean Samis says:

    has anyone calculated the “Capital costs per rider” on the Interstate system? How large is the subsidy that supports the unprofitable highway system?

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