Will Congress' "Cash-For-Clunkers" Plan Work?

(CBS/iStockphoto)


Democrats say they have made significant progress overcoming conflicting interests to advance climate change legislation in the House of Representatives, but one recent compromise could amount to simply another significant auto industry subsidy, some economists say.

Pressure is mounting for House Energy and Commerce Chair Henry Waxman (D-Calif.) to bring the legislation to the House floor by Memorial Day, as he promised. The committee could vote on the bill next week.

However, the cap-and-trade legislation in development has environmentalists who support reducing carbon emissions at odds with business-minded Democrats and Republicans, who say putting a price on carbon will hurt the economy.

Rep. Jay Inslee (D-Wash.), a strong proponent of the bill, told reporters Thursday that major progress has been made over the last 24 hours. After meeting with the New Democrat Coalition, a centrist group that focuses on issues like national security and economic growth, Inslee said the coalition will sign a resolution urging the passage of climate change legislation this year.

"This is a very complex bill," said Inslee, chair of the sustainable energy and environment coalition. "There will be issues about this bill until the signing ceremony on the South Lawn."

Waxman has worked hard, though, "to accommodate members' concerns that are unique to their districts," Inslee said. For important committee members like former chair John Dingell (D-Mich.) and Rep. Bart Stupak (D-Mich.), that means helping the auto industry.

After meeting with the White House earlier this week, the House reached an agreement on a bill provision called "cash-for-clunkers." The program would allow consumers to trade in their old cars for a voucher of up to $4,500 when buying a new, more fuel-efficient vehicle.

"Cash-for-clunkers is a common sense proposal that will help provide a shot in the arm for the American auto industry at a crucial time for our economy, reduce the emissions that cause climate change, and make Americans more energy independent," Majority Leader Nancy Pelosi (D-Calif.) said in a statement after the agreement was reached.

Under the plan the House agreed upon, consumers would get a $4,500 voucher for purchasing a passenger vehicle with mileage at least 10 miles per gallon higher than their old car, or a $3,500 voucher for a new car with mileage at least 4 mpg higher. The new car must have a minimum fuel efficiency rating of at least 22 mpg. Consumers could also get vouchers for buying new trucks or SUVs that meet similar but less stringent mileage standards.

The House agreement stipulates the program will fund up to a million vouchers over the course of a year, which would cost between $3.5 billion and $4.5 billion.

But the cash-for-clunkers program may not necessarily increase car purchases, instead just shifting when purchases are made.

"To some extent, this is just getting people to accelerate their car purchases," said Professor Daniel Sperling, director of the Institute of Transportation Studies at the University of California at Davis, and acting director of the university's Energy Efficiency Center. "The auto industry is in such bad shape right now, they desperately need to move the metal right now."

And while some skeptical economists agree that the program is likely to spur immediate car purchases, they say it will do little to contribute to the reduction of carbon emissions. Furthermore, they say, it could have been crafted in a manner less burdensome for taxpayers.

"It'll clearly be effective if the goal is to sell vehicles," said Sperling. "If the goal is to reduce energy use or greenhouse gases, it's going to be costly."

Billions in taxpayer dollars have already gone to the auto industry, and the Obama administration has said Chrysler, which is now bankrupt, may never pay back the more than $7 billion it is receiving from the U.S. Treasury.

Sperling said there could be other ways to aid the car industry while promoting fuel-efficiency. For instance, consumers could be given a rebate for buying a fuel-efficient vehicle but charged a fee for purchasing a gas-guzzler.

"I would greatly prefer a policy like that because (the current policy) is taxpayer money," he said. "This is straight and simple a subsidy to the car companies. To evaluate it in any other way is disingenuous."

Economist George Hoffer, a professor at the Virginia Commonwealth University School of Business, said the vouchers for trucks and SUVs will be particularly effective at stimulating the domestic auto industry, since those vehicles provide the largest profits. However, he said the program could be more consumer-friendly by including vouchers for used cars.

"By not including used cars, it becomes very high-income biased," he said. "For the most part, at the bottom end of the feeding chain, the people getting this credit for their used cars would not be (in the market for) a new car, whatsoever."

Representative Inslee said that a national, comprehensive climate and energy policy will have to take into account the needs of different regions in the U.S. He said he expects the bill to be successful, even in spite of concerns that some of the compromises in the climate change bill could detract from its ultimate goals of reducing carbon emissions and stimulating alternative energy industries.

"We can and will obtain an effective bill that will dramatically reduce carbon emissions and dramatically reduce our dependence on foreign oil and still maintain fairness in who takes up the burden," he said.

Ultimately, proponents of the bill say it will help consumers by stimulating job growth in areas like wind power in the Midwest, or biofeul production in the South.

"There's not a place in this country where you cannot find opportunity for job creation," Inslee said.

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