Cash for Clunkers

After less than a week, the U.S. government's new Cash for Clunkers programme has already met its targets.

The Cash for Clunkers programmes offers car owners $3,500 or $4,500 to purchase new, more fuel-efficient vehicles in the exchange for scrapping their old car. The programme is designed to stimulate the auto industry and reduce the U.S. carbon footprint.

Cash for Clunkers is expensive. It has already eaten one billion dollars of public funds, and the House of Representatives has had to approve two billion more. But is it that effective?

It's estimated that every billion dollars spent on this programme will bring 250 thousand fuel-efficient car purchases. Some of these cars would be purchased anyway, but the unprecedented spike in sales indicates that, at the very least, some people are buying earlier than expected.

If the House spends 4 billion dollars on the programme, which seems to be the amount agreed on, this will replace 1 million old, inefficient vehicles with new, fuel-efficient ones.

1 million cars may sound like a lot, but its actually very little. Approximately 10 million vehicles are sold in the United States every year. The benefit to the auto industry of this programme will therefore be limited. The modest overall gain in fuel efficiency that will reduce the American carbon footprint will also be vastly offset by the millions of new cars hitting the road every year in China, India and other developing countries, most of which are inefficient.

Increasing car efficiency might makes economic sense, but it won't stop global warming. The only way to stop global warming is to find radical new technology, like hydrogen fuel cells, for instance, to bring car emissions down to zero. Improving mileage and reducing emissions by a few percent is great in principle, but it's simply not enough.