What’s Wrong with the cash for old cars program

The government has recently announced that they will institute a program whereby people who own old “polluting” cars can trade them for cash and transit tickets, or more cash if they spend it on zero emissions transportation.

Sounds good, but it isn’t – for two reasons. First reason – it conflagrates (and thereby increases public miscromprehension of) the distinction between pollution that causes smog and pollution that causes global warming. Cars made before 1995 had higher limits on smog producing nitrous oxides, however, since CO2 is directly proportional to fuel burnt, only more fuel-efficient cars produce less of it. And, since the fleet economy (the average economy of cars sold) has not improved since about 1990, the year 1995 is completely arbitrary in relation to CO2 production.

There is another problem – with the high price of fuel, it is understandable that there will be an increased demand for older, cheap cars which are good on gas. While this isn’t neccesarily good for smog, it is good for C02 – since it doesn’t matter how or where the fuel is burnt, it produces the same C02 in any two cars that have the same fuel economy. Thus, there will be an increased demand for old hatchbacks such as civics and Geo Metros and Fort Fiestas. However, with this program it will become impossible to purchase one of these cars for less than 1500$ – because the sellers opportunity cost is getting 1500$ plus transit passes to have the car destroyed. Considering these cars can currently be purchased for between 500 and 2000 dollars, this will be a serious market distortion, which will force people to buy newer, more expensive cars. And, since fuel economy is becoming a main selling point, they likely will have to purchase a car which is worse on fuel – for example, it is now the case that full size cars from the mid to late 90s generally cost more than economy cars from that era, simply because there is (and understandably) more demand. For example, a 1998 Ford Taurus can be picked up in good condition for 2000$, but you will pay more than that for a Focus or Honda Civic or Toyota Corrola. The lack of pre-1995 efficient cars will intensify this problem.

Advertisements

6 thoughts on “What’s Wrong with the cash for old cars program

  1. Quite right on both counts. Of course, the new policy does help auto manufacturers with sales struggling due to high oil prices and poor overall economic conditions…

  2. It’s just like how UBC is happier to buy back last year’s textbook for destruction than to let you keep it. Having old ones floating around reduces the strength in the market for the shiny new shrink-wrapped edition.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s