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. Rodney says:

    So, the US government borrows money to pay people to upgrade to cars that save them money. Win-win, right? So, what effect comes from that money being taken from the credit market? Might lowering the supply of credit by a few billion dollars mean that some folks who otherwise were hoping to replace an old car this year can’t do so because they can’t get a loan that they would have gotten with a higher credit supply? Does supply and demand not affect credit markets or is the effect of diminished supply inconsequential?

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  2. Rodney says:

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

    Are you saying that Japan and Europe are better off economically or just that they have more passenger trains?

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  3. Swingline says:

    I was reading about the potential number of plane trips not taken and automobile rides as well in a fully developed HSR system. This was in the CSMonitor weekly. It seemed that, at those levels, it would dramatically shrink if not kill the auto and airline industries. Of course, it is claimed that early auto manufacturors hastened the decline or stultification of the railroad in the US.

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  4. BruceMcF says:

    You write that HSR systems will require years of planning, in apparent ignorance of the long planning process that has already taken place for the Midwest Hub and Ohio Hub.

    Indeed, you worry about the “targeting” of the program, and then mention three areas … the West Coast,, the Midwest and the Southeast … likely to receive a majority of the $8b HSR funding in the Stimulus bill.

    I’ll admit that neither are as sloppy as using UK average emissions assuming no special program to reduce CO2 emissions to estimate the CO2 emissions of a California HSR system with an explicit program to reduce CO2 emissions, nor of talking about the lack of construction estimates for CO2 when citing a report that includes construction estimates of CO2 …

    … but still, awfully sloppy.

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  5. DrS says:

    To Kevin, who refutes the claim that it is almost like turning the average car into a Pruis because “25mpg is significantly less than a Prius”, you’re forgetting, as the author remembered, to use gal/100m rather than mpg. The net gain of the new cars bought compared to the cars removed from the road is over 30% less gas used per mile driven.
    If you consider a Prius to get 46 mpg(2.17 gal/100m), it uses 30% less than a care that gets 32.2 mpg(3.11 gal/100m), which is close to the average passenger car sold.
    Lets also remember that the difference in mpg in reality vs. rating is larger for the Prius than for most cars.

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  6. dav says:

    I’m actually buying a gas guzzler in case they do this again next year.

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  7. Gary says:

    “The program rewards those who behaved badly (bought gas guzzlers) in the past, while those who were virtuous miss out.”

    And the virtuous pay for it in higher taxes and devalued currency . This is just another way in which government always does more harm than good when it tries to manipulate behavior.

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  8. Nolan says:

    I’d like to see someone study the environmental effects of manufacturing tens of thousands of cars more than otherwise would have been been under cash for clunkers
    freakonomics team on the case??

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