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. Jennifer @ Improve Gas Mileage Guide says:

    It’s a tough call on this one. I go back and forth on the Cash for Clunkers issue. For one, I see new cars with lots of life left in them destroyed for the program, and all that scrap metal is going where exactly? That’s not good for the environment.

    Also, I’m not sure about the economy. We see a sudden growth in the economy now, because people are out there spending spending spending on cars, but what about later? I mean, look at what happened to the housing market! All these people were out buying houses that were too expensive for them because someone gave them money, and then they couldn’t afford the payments. $4500 doesn’t make much of a dent on a new car, and some of these people are taking out loans they won’t be able to pay for.

    So, can we predict that the auto industry will have the same problem the housing market did? It’s possible. Only time will tell. But I think the government needs to learn to stop getting involved in such matters.

    However, in all honesty, if I had a clunker, I would trade it in for a new car and $4500. Why turn down free money? But only if I could afford the new car with the extra money. I wouldn’t put myself in debt that I couldn’t pay down.

    http://www.improve-gas-mileage-guide.com/cash-for-clunkers.html

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  2. Troy Cross says:

    CFC destroys the clunkers after paying out the $$$. What about the economic value of those old vehicles?

    Without CFC, they would have been available, cheap transportation. Now, there is an artificial floor of $4k on used cars. This is devastating for the poor, and not good for the affluent either, since transportation is often what keep them from working, which drives up the cost of labor in affluent areas.

    CFC

    1. is regressive, since the debt will be carried by all members of society, though only those wealthy enough to purchase a new car benefit and the poor are punished with expensive used vehicles;

    2. sets the bar so low on mpg of the new vehicles, it won’t change the mix of new vehicles sold, creating a demand for efficient diesels, compacts, and hybrids, i.e., won’t fundamentally shape the marketplace or buying behavior;

    3. won’t lower CO2, arguably, at all, since the pace at which fuel efficiency is increasing is greater than the time required to compensate for CO2 produced by manufacturing the new vehicle. That is, if purchases were delayed, they would buy higher mpg vehicles. That fact, together with the delayed auto factory / mining / shipping CO2 emissions, offsets the continued driving of the clunker in the meantime. So, I doubt there is ANY CO2 reduction in the CFC plan.

    So what does the bill really accomplish? It’s a giveaway to auto companies, dealers, and middle class people in the market for a new vehicle.

    Would it not be more effective to take the same amount of money, 3 billion, or whatever, and capitalize GM?

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  3. Graham Katz says:

    It is a common misconception, repeated in comments above, that highways are paid for by “earmarked fuel taxes on highway users.” In fact, the fuel taxes that pay for interstate highways is mostly generated by taxing non-highway fuel use (of the 3 trillion vehicle miles traveled in the USA in 2008 only 700 billion were driven on interstate highways – about one quarter). Interstates are extremely expensive to build and maintain, and fuel taxes on cars driving on the interstate can’t come near to paying for them. Which is why – although accounting for only 25% of the use – highways costs take up about 90% of gas tax revenues. We massively cross subsidize interstate highways with fuel taxes paid for by cars driven mostly on local and county roads. And who pays for those roads? Everybody (property tax payers, sales tax payer, etc). Just like Amtrak.

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  4. aaron says:

    You way over-sell C4C. You assume a 1 for change in the miles driven, the clunkers traded in probably aren’t primary vehicles. The sales are shifted from the future, so less of the better cars of tomorrow will be bought.

    It really just pushes up the price for cars in the less than $4500 range in the long run.

    So far, the only benefit I can see is that by getting the poorest, and therefore least intelligent, least efficient, and least safe DRIVERS off the road, we get a slight reduction in congestion.

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  5. Magne Salveson says:

    Reading the article it seems like you are forgetting the possibility of using the tracks for freight trains at night. This is what’s done in Germany and other European countries that have HST.

    Off course this only applies for the “ordinary” HSH, not the really fast ones like the MagLev.

    As for the car industry, in WW2 they managed to produce planes and torpedos within a year after som pressure from the government. Source for this is Jack Doyle, Taken for A Ride, Detroits Big Three and The Politics of Pollution.

    Michael Shnayersons, The Car That Could, The Inside Story of GMs Revolutionary Vehicle makes one wonder if the company would have done it better if it hadn’t dropped the EV-1.

    Here in Norway (with our lnterests in fossil fuel) it’s almost amusing to follow the debate about HST. (Keep in mind that lot of norwegians are highly critical to the US environmental policy).

    Deutshe Bahn (http://www.db.de), a company that has a lot of experience with HST researched the viability of HST here in Norway. They concluded that it would indeed be viable, provided that the speed was at least 300 km/h (ap. 480 m/h). Among the things the report pointed out was that it would be cheaper to build the rails here than on the continent because it’s a lot of rock, hence the fundamentation is not a problem. I guess the Rockies and surroundings and the farmlands of the midwest can serve as a parallell.

    However our environmental friendly politicians, eager to open for oil drilling in the north, seems to have more confidence in a small local consultant company without previous experience in the field of HST. They have concluded that it’s not cost effecient.

    A spokesperson for the aviation authorities came up with the following argument against HST
    “If we build high speed trains it will make it impossible to keep the small airports running due to lack of overhead from the larger. We have a lot of airports here:
    http://en.wikipedia.org/wiki/List_of_airports_in_Norway

    It’s about 5 million peoplee living in Norway.

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  6. Eric says:

    It seems like the statement about direct net benefit for society is based on a false assumption. The talk is about the fuel savings over the lifetime of the new car, but the old car wouldn’t have lasted that long. The savings per year is only good for as long as the clunker would have been used – after that, it might have been replaced with a new car that thanks to new tech, gets better mileage than what’s on the road today, or a slighly less clunkerly used car, or maybe not at all.

    But do we know the average mileage on the clunkers? If they only had two years of full fledged driving left in ‘em anyway, we’re clearly not recouping our losses.

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  7. Mekhong Kurt says:

    I’m somewhat surprised at the apparent bias against HSR in this piece.

    Sure, *any* rail between, say, Laramie and Fargo wouldn’t make sense. But what about between, say, Los Angeles and San Francisco?

    I’m from near the Dallas-Fort Worth area, and a number of the cities in the Metroplex, as it’s called, are participating a a mass transit project that involves more highways, more buses, and extensive light rail. There’s also talk of limited streetcars returning to downtown Dallas. There’s also talk of a HSR link between at least D/FW and Austin, very possibly on to San Antonio. And there’s talk of a side branch to Houston and a southern one going on to the Mexican border. And I think that’s a good idea. And how about north to Oklahoma City? For years government economists have spoken of the Oklahoma City-San Antonio corridor as being in some ways a single, integrated economic entity.

    BTW, the light rail in D/FW serves D/FW Airport.

    As for the dollar costs, well, I’ve seen such wildly varying estimates that I really have no idea about those, so can’t argue one way or the other about those.

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