An Economic Analysis of Scrappage

Robert W. Hahn ^*

This article examines the impact of policies aimed at encouraging the retirement of older, high-polluting vehicles, such as the "cash for clunkers" policy endorsed by President George Bush in 1992. The analysis assesses the likely benefits and costs of vehicle scrappage programs. I also address the interaction of a scrappage program with other ongoing policies, such as improved inspection and maintenance. Finally, the simulation for Los Angeles suggests plausible design values for a scrappage program.

■ The control or vehicle emissions from automobiles has focused on the introduction of new technology through tighter regulations of new vehicles ( White, 1982). Although emissions from new vehicles have been reduced substantially, aggregate emissions from vehicles have not declined as quickly. The relatively low standards for older vehicles. coupled with the increase in vehicle miles travelled have tended to counterbalance the tighter standards that have been imposed on newer vehicles (see, e.g., Krupnick, 1992).

The California Air Resources Board ( CARB, 1993 a) reports that in California, "mobile sources," which include passenger cars, trucks, buses, and other vehicles, are responsible for nearly 60% of all ozone-forming emissions and over 90% of all carbon monoxide emissions. The large fraction of emissions from vehicles suggests that it may be possible to introduce policies that reduce emissions at a lower overall cost than do existing policies. For example, Mills and White ( 1978) outline an approach to implementing an emission fee, and White ( 1982) suggests several approaches for improving regulation of motor vehicle emissions. More recently, several authors have begun to examine a variety of programs aimed at reducing vehicle emissions from existing cars. Examples include fuel taxes, introduction of more stringent inspection and maintenance (I&M) requirements, and the use of new technologies such as remote sensing of emissions ( Krup nick , 1992; McConnell and Harrington, 1992; and Harrington and McConnell, 1993).

This article provides an in-depth examination of one particular policy aimed at reducing emissions from older cars. The strategy provides an inducement to scrap old vehicles before the point at which they would be naturally scrapped. I shall refer to the

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policy as "scrappage." The reason for the interest in scrappage is that older vehicles are thought to account for a disproportionate share of vehicle emissions, and the scrappage of some of these vehicles may represent a low-cost strategy for reducing vehicle emissions. ¹

Scrappage has received some attention in policy circles, but relatively little in academic circles. The most famous application of scrappage was a program implemented by the Unocal Corporation in 1990 ( Unocal, 1991). Unocal offered $700 to owners of pre1971 vehicles to encourage early vehicle retirement. Owners retired over 8,000 vehicles between June and September. Air pollutant emissions in Los Angeles are estimated to have been reduced by 12.8 million pounds ( Unocal, 1991). Riding the wave of its past success, Unocal recently completed a second scrappage program, retiring 500 vehicles from model years 1971 to 1979; a third program is under way ( Unocal, 1994). This third phase has the distinction of being the first scrappage program to use preapproved mobile source credits as offsets to delay compliance with new regulations ( Rafuse. 1993).

In 1992 President George Bush endorsed a "cash for clunkers" program designed to encourage scrappage ( Gutfeld and Davis, 1992). Bush's promotion of this idea spurred interest in a number of cities having difficulties complying with federal pollution-control laws. To date, them has been relatively limited use of the scrappage option outside of the Unocal programs. In California, the South Coast Air Quality Management District (SCAQMD) has a limited program involving aerospace manufacturing, which allows firms to delay putting on additional control equipment if they obtain enough emission reduction credits by retiring pre-1980 vehicles. By the end of 1992, the SCAQMD received six mobile offset plans, and 130 vehicles were scrapped ( SCAQMD, 1992). Other scrappage programs include: the Kern County (California) Auto ...