Cash-for-Clunkers Revisited
Posted August 31, 2009 at 11:33 am 
Filed in: A week ago we estimated that the cash for clunkers program cost about $63 per barrel of oil saved.
Today the New York Times editorialized that the cash-for-clunkers program was too expensive a way to take cars off the road in order to reduce carbon emissions, noting that the carbon savings cost about $300 per ton, about 15 times to cost of an allowance to emit a ton of CO2 on the European Climate Exchange and about 10 times the CBO estimated cost of a permit to emit a ton of carbon under the cap-and-trade program in the clean energy bill passed by the House in June.
After the final numbers came in, we wanted to update our estimate, which was close to the final numbers. (I want to reiterate my understanding that the purpose of the program was not to save oil, but to stimulate demand for new vehicles.) This analysis may, however, be useful in deciding whether to extend such a program to reduce fuel consumption or carbon emissions.
Our brief analysis starts with a bunch of assumptions.
Cost of Program: $3 billion
Cars sold under program: 690,114
Fuel economy of average clunker: 15.8 miles per gallon
Fuel economy of average new car: 24.9 miles per gallon
Miles driven per vehicle: 12,000 annually
Based on these assumptions, the clunkers were each consuming 759 gallons of gas a year, and the new cars will consume 482 gallons per year, for a savings of 277 per year per vehicle per year. Nationwide that yields a savings of 191,552,155 gallons per year, which is 4,560,766 barrels per year or 12,495 barrels per day.
If each car lasts for 10 years, the lifetime saving 45,607,660 barrels of oil cost $3 billion, or about $65.79 per barrel of oil saved.
If, however, you assume that the cars would only be on the road for 5 more years at which time they would be replaced with the more efficient vehicle, the price per barrel doubles to about $130. Given these costs, it remains unclear when a cash-for-clunkers type program makes sense as the best use of the government’s scarce resources.
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