Posted by: adoseofliberty | September 11, 2009

(Too Much) Cash For Clunkers

A Brief Financial Analysis

After the never-ending flood of news pieces and commentary on the wild “success” of the Cash for Clunkers program, officially known as the Consumer Assistance to Recycle and Save Act, or CARS, I decided to investigate the details of the report and offer a rough mathematical analysis of the results.

According to the CARS program statistics report dated August 26, 2009:

Dealer Transactions
Number Submitted:  690,114
Dollar Value:  $2,877.9M

New vehicles Mileage:  24.9 MPG
Trade-in Mileage:  15.8 MPG
Overall increase:  9.2 MPG, or a 58% improvement

For our calculations, which will be based on a period of one year, the EPA states that “12,000 miles per vehicle is used as a rough estimate for calculating the greenhouse gas emissions from a typical passenger vehicle.”

Rounding these numbers (and actually increasing the amount of mileage improvement) to simplify our calculations, we get the following:

  • A vehicle rated at 15 mpg and 12,000 miles per year uses 800 gallons of gasoline each year
  • A vehicle rated at 25 mpg and 12,000 miles per year uses 480 gallons of gasoline each year

Hence, the average “clunker” transaction theoretically reduces U.S. gasoline consumption by 320 gallons per year.

The report states that approximately 700,000 vehicles were submitted in the program which results in a reduction of (320 gallons per year x 700,000 vehicles) = 224 million gallons per year.

Based on an estimate of about 20 gallons of gasoline per barrel of crude oil, that equates to about (224 millions gallons / 20 gallons per barrel) = 11 million barrels of oil.

For some perspective, the U.S. consumes about 20 million barrels per day (bbl/d) of petroleum and about 9 million bbl/d of motor gasoline, so this is about 1/2 of a single day’s oil consumption, and approximately a single day’s gasoline consumption.

Crude oil has been averaging around $60 per barrel over the past year according to the Wall Street Journal.

Hence, 11 million barrels of oil equates to about $660 million dollars at $60/bbl.

From the CARS report, the program cost approximately $3 billion.

So from a purely financial perspective, $3 billion dollars of U.S. taxpayer money was spent to save $660 million dollars in gasoline.

The Green Aspect

To be fair, the other “benefit” in this cost-benefit analysis is the carbon footprint savings.

According to http://www.whatsmycarbonfootprint.com/faq.htm, 19.564 pounds of carbon dioxide, CO2, are emitted per gallon of gasoline.

Hence a reduction of a total of 224 million gallons of gasoline would mean 4.4 billion pounds of CO2 “saved” in one year.

Based on PG&E’s assumptions, the Average American emits 32,607 pounds of CO2 for “Energy and Vehicle Use” per year. Multiply this by the approximately 300 million U.S. residents and we arrive at 9.8 trillion pounds of CO2 emitted by the U.S. population in one year.

So on an annualized basis, “saving” 4.4 billion pounds of CO2 translates to a relative improvement of ((4.4 billion / 9.8 trillion) * 100%)  =  0.045%.

In other words, half of a hundredth of a percent of energy and vehicle CO2 emissions were “saved” at the cost of ($3 billion – $660 million) = $2.3 billion.

Who Needs Efficiency?

For those who are not appalled at this result, we can compare this form of “carbon offsetting” (actually, the CO2 is never emitted so it is technically more “pure” in terms of environmental savings) done by Uncle Sam to the offsetting services offered by the private industry.

The government CARS program reduces emissions at the cost of approximately ($2.3 billion / 4.4 billion pounds) = 52 cents per pound of CO2.

The average cost of carbon offsetting via private companies is roughly $10 per metric ton of CO2.

There are 2204 pounds per metric ton so a cost of $10 per metric ton is ($10 / 2204 pounds/metric ton) = 0.0045 dollars or about half of a cent per pound of CO2.

Hence, for these folks who participated in the program, it could have cost them a per-pound rate of about 0.45 cents if they individually did their own carbon offsetting, compared to the rate of 52 cents per pound done by the U.S. government.  For anyone who doubts the “efficiency” of government, this is a prime example of how our brilliant leaders somehow manage to produce the same results at 116 times the normal market cost.

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Responses

  1. […] budget outlook that sends the national debt to unprecedented levels?  Does anyone remember the wildly “successful” cash-for-clunkers?  Or the “stimulus” bill that did what exactly?  Oh yeah, lose money and create jobs […]


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