‘Cash for Clunkers’ can cut gas prices, climate change — and Putin’s income
As evidence of Russian atrocities in Ukraine mounts, the U.S. is once again grappling with our dependence on foreign oil. Although we produce more than we consume, we imported about 670,000 barrels per day from Russia last year — more than we imported from Saudi Arabia. At recent prices of $100 per barrel, that’s nearly $25 billion that fed Russian President Vladimir Putin’s war machine. The U.S. ban on Russian oil helps, but is small compared to total Russian exports.
The oil market is global. A sustained reduction in U.S. consumption would reduce the need for Russian oil around the world and help lower oil prices. What we do in Kentucky and Kansas can help the people in Kyiv and Kharkiv.
So, how can we cut oil consumption and energy costs? President Biden wants electric vehicles (EVs) to comprise half of all new car sales by 2030 and proposed higher incentives to do so. But selling more EVs does little to reduce the existing fleet of internal combustion engine light-duty vehicles (cars, SUVs and pickup trucks). Think of the existing combustion vehicle fleet as a huge bathtub. The tub is filled by sales of new combustion vehicles and drained when old ones are scrapped. The flow of new combustion vehicles into the tub falls when people choose EVs. But the 250 million combustion vehicles in the tub today would continue to run, propping up oil demand and prices, funding war — and fueling climate change, since they generate nearly 17 percent of U.S. greenhouse gas emissions. And those vehicles last a long time: even if EVs suddenly became 100 percent of new vehicle sales from today on it would be about 20 years before the fleet of all light duty vehicles on the road became 90 percent electric. The best way to empty a tub is to open the drain. Policies that accelerate vehicle retirement can do so.
Our research shows that a “Cash for Clunkers” (C4C) program in which new car buyers are paid to scrap their combustion vehicles would speed vehicle retirement, cut U.S. oil consumption, accelerate the transformation of the transportation sector, increase consumer choice, and help achieve our climate goals. Under C4C, drivers buying a new EV would receive a cash incentive to have their old combustion vehicle decommissioned and recycled instead of trading it in for resale. The inflow of new combustion cars into the tub falls and the outflow of old, polluting ones rises.
To quantify the potential, we simulated the evolution of the U.S. vehicle fleet through 2050 using a model that incorporates consumer automobile purchasing behavior, the light-duty fleet, vehicle retirements and the growth of the EV market. We found C4C to be effective with incentives from $7,000 to $12,000, similar to today’s existing and proposed levels. Additionally, in contrast to a 2009 program, C4C should stay in force for years, with eligibility limited to those purchasing new EVs. This program design leads to the most cost-effective reductions in oil consumption and greenhouse gas emissions because it kick-starts virtuous cycles that amplify its impact.
How? The more EVs purchased via C4C, the faster the EV industry and fleet grow. Faster growth drives EV costs down through scale economies, speeds deployment of charging infrastructure, and boosts the variety of EV makes and models available. Consumer familiarity with and willingness to buy EVs accelerates. All of these further boost EV sales and combustion vehicle scrap rates in a virtuous cycle.
EVs are now cheaper to run and generate lower CO2 emissions than combustion vehicles, even after accounting for the emissions from EV manufacturing and decommissioning, and even in states still using coal in electricity production. They also produce zerotail-pipe emissions of the criteria pollutants that disproportionately harm low-income and minority communities, which can improve health and lower health care costs.
EV emissions fall further when the electric grid powering them is cleaner, so we also explored how C4C can be enhanced by complementary policies that speed grid decarbonization. Renewable sources of electricity are already growing and coal plants shutting down, but not fast enough to meet our climate goals. Policies promoting clean power could accelerate decarbonization and, alongside C4C, reduce emissions by more than the sum of their parts, at costs in line with Environmental Protection Agency (EPA) estimates of the social cost of carbon.
Other important considerations: Policymakers interested in implementing C4C must coordinate with the auto industry and its suppliers to mitigate supply chain shocks. C4C incentives could phase out at higher incomes to promote equity. Our study did not examine employment impacts but others show that policies that incentivize EV purchases and invest in domestic EV manufacturing can protect and create U.S. jobs.
Our proposed C4C program is voluntary and expands consumer choice. Americans opting in could receive a lot more than cash in return. They could say goodbye to the gas pump, help cut oil consumption, create American jobs, protect us from the worst impacts of climate change — and help deny Putin the revenue propping up his regime.
David Keith is an assistant professor at MIT’s Sloan School of Management.
Their research is described in “Accelerating Vehicle Fleet Turnover to Achieve Sustainable Mobility Goals,” published in The Journal of Operations Management.
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