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.)


caseynshan

One problem, you are assuming, miles driven are being traded 1-1.
My parents traded in two vehicles.. 1 was an old van that was driven an average of 1000 miles a year and qualified for CFC, the other was a 2001 minivan that was driven average of 15000 miles per year. They utilized the CFC program, traded in both, and bought a crossover, that is much more fuel efficient than the first vehicle, but slightly less efficient than the minivan. ... Net is bad for environment. I have a feeling many of the clunkers being traded in were rarely driven.

Kevin

You claim that "A turnover of this magnitude has approximately the same impact as magically turning the average passenger car on the road into a Prius."

And that's completely false- If a lot of people started driving Prius's or cars that got better mpg than a Prius, then sure, it would be as if the average passenger car was turning into a prius. But 25mpg is significantly lower than what a Prius gets! We aren't anywhere near having lots of fuel efficient cars on the road, even with CFC.

Overall, your analysis of HSR so far has been incredibly short sighted and in many cases wrong, in terms of arguments for and against HSR!

In some ways this isn't your fault, HSR introduces a whole new dynamic into transportation. The way people act with good public transportation is completely different. For example, you claim airport usage may go down with HSR. This may be true in some respects, but at the same time with better HSR we may start to see more public transportation ("last mile") from HSR hubs. If this also services airports, we could see more airplane usage from people who would have driven in the past so that they'd have an easy way to get around at their destination.

The main problem with how the US is currently viewing HSR is that public transportation needs to be built on an intra and inter city basis simultaneously, or else there will not be enough ridership on either. As an example, consider Providence, RI. The local transportation is adequate in some areas, but has poor service for most of the city. Given better HSR service, would more people from NYC and Boston choose to take the train to Providence rather than drive? Without efficient local transportation, there is little incentive not to take one's own car, unless someone else is paying for a rental car. But when an integrated system is built, people can travel all over effectively while leaving their car in the garage. The carbon savings of this are huge- and add additional savings on to any calculation of gains from HSR.

HSR would be a great addition to the US, but it's really only a start. Until we consider transportation at all levels, we'll never have a system that's as effective as Europe's or Japan's.

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Peter Merriam

These aren't the only choices. Someone NEEDS to give Skytran a fair trial. If it does half of what it claims, it will beat adding more cars to the road by a long shot, and will face many fewer barriers than HSR.

Here in the DC area, where a new Metro line was recently approved, and badly needed, the NIMBY arguments are already clogging the airwaives. Skytran will have a much smaller impact, both financially and aesthetically.

Pete Merriam

http://www.skytran.net/phpsite/home/Home%20Intro.php?bg=neg

Willis

Cash for Clunkers is only good in that it is getting numerous inefficient vehicles off the road. I expect it to have the same problem that the "dealer pricing" and "0% interest" policies have had in the past. A lot of people who might not have purchased a vehicle for a year or two have decided to upgrade. The result will be even worse sales over the next two years or so. The companies who did not pursue these absurd policies are still profitable (Japanese and German companies) while the american companies are all filing Chapter 11 and seeking bailout money. Businesses need a consistent and regular cash flow and getting $14 bil in sales in a 3 week period followed by no sales for the next 6 months is not very consistent. I assume that the $4500 per car with $3bil in funding will result in about 667,000 sales of about $20k each. And as an additional question, is this going to actually put people back to work, or are these just cars which were already produced and sitting on lots. I doubt many dealers are going to be restocking to the same levels as in the past with the future sales looking fairly bleak.

Dream all you want about CFC as a great idea, it is a temporary patch. To improve the future, you need to look to the future and the future of transportation is HSR unless the authors have invented some sort of teleportation.

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Arvin

How about a study on the impact of all the waste that becomes of those old cars? How much energy will be needed to get them where they'll end up, and how much of the materials will be recycled, and how much of the scrap will contribute negatively towards the environment.

Freddy J. Nager

In answer to Willis above:

CFC is putting people back to work. Here. In America. As announced right here in today's New York Times:

http://www.nytimes.com/2009/08/14/business/14ford.html

Steve in Pennsylvania

The government should have just bought the inefficient cars. The seller then could decide to buy another car from a dealer or private seller, The seller also could decide to buy school supplies, go to Vegas, retire debt, or just save it.
The environmental good would have occurred -- old cars off the roads -- but the collective decisions of millions of people would have shaped the economy.
I would imagine that many people in NYC who own cars would have just sold them and used mass transit instead. In the burbs, many two- and three-car families would figure out how to get around with fewer cars.
In the exurbs and smaller cities with no good mass transit systems, inefficient cars would have been traded for more efficient cars.
In any event, the people would shape the new economy.

rsand

The problem is that all of the new cars don't just appear, and all of the old cars don't just disappear. It seems that creating this demand for new cars is actually creating a worse situation for the environment.

robu

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).

Philippe

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...

Cheers

jacob

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

Andrew McKeon

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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John Doe

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.

cirby

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.

charles

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.

Sean Samis

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

Rodney

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?

Rodney

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?

Swingline

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.

BruceMcF

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.