Cash for Carbon

Nicole Larson
November 4, 2019
Nissan Electric Vehicle Incentives

In the event that Democrats win back the Senate in 2020, current Senate Minority Leader Chuck Schumer (D-NY) would introduce a proposal to speed up the transition to electric vehicles that would eliminate carbon emissions from approximately 65 million gas-powered cars.  

The initiative aims to allocate an estimated $450 billion over 10 years to help consumers trade in their gas-powered cars for hybrids, plug-in hybrids (PHEVs), electric vehicles (EVs), and hydrogen fuel cell vehicles. The bill would also expand charging stations across the nation and encourage EV and battery manufacturing throughout the country.

Schumer’s proposal unites environmentalists, the labor movement, and large automakers because discounts would only apply to American-made EVs, and funds would be available to retool factories to manufacture EV-related equipment. In a nod toward equity concerns, the plan creates greater incentives for lower-income Americans to apply toward a used vehicle or a new car.

Recognizing that a lack of infrastructure can be a barrier to EV adoption, the Schumer proposal also provides grants to states and cities to build out more EV charging stations, specifically in low-income and rural areas.

Finally, to revitalize American auto manufacturing, the plan would provide grants to turn existing manufacturing plants into EV and battery manufacturing plants, and build new factories specializing in EV technologies.

Schumer believes his proposal will create tens of thousands of new jobs, reinvigorating many areas where manufacturing businesses have faltered, and push the U.S. to be competitive with China in clean manufacturing.

Federal Cash for Clunkers

During the Great Recession (December 2007-June 2009), the federal government implemented a bipartisan program to revamp the auto industry. The Car Allowance Rebate System, commonly known as the Cash for Clunkers program, offered incentives to Americans trading in older, less fuel-efficient cars for cleaner cars.

Immediately, car sales bounced back, and the program ran out of funds three months earlier than expected. The government re-funded the program, which was eligible for people trading in cars that got less than 18 miles per gallon for cars that got 22 miles per gallon or more.

The improvement in mileage for the Cash for Clunkers program was not nearly as extreme as what Senator Schumer’s bill would cause; the purpose of the Obama-era program was to stimulate the economy by improving demand for cars. Senator Schumer’s plan aims to tackle transportation emissions more aggressively, with the primary purpose of shifting people out of gas-powered cars and into electric or low-emission vehicles.

California Enhanced Fleet Modernization Program and Clean Cars 4 All

To encourage low-income Americans to buy cleaner cars, California has implemented the Enhanced Fleet Modernization Program (EFMP). This program gives incentives to low-income Californians who trade in their older, higher-emitting cars for cars that achieve more than 35 miles per gallon. The cars do not have to be hybrids or EVs. Other state rebate policies only apply to new cars, but EFMP funds can go toward the purchase of a used vehicle, making lower-emitting more accessible to low-income drivers.

Additional incentives are available through the add-on Clean Cars 4 All program, which apply to low-income drivers scrapping their old cars and purchasing a car that is a hybrid, PHEV, fuel cell vehicle, or BEV, with incentives increasing as the car becomes cleaner.  Under the Clean Cars 4 All add-on, the amount rebated increases depending on the fuel efficiency of the replacement car, with PHEVs and BEVs having the highest possible rebates.  

Since the EFMP was implemented, more than half of the retired cars were replaced by some sort of plug-in vehicle, demonstrating that the additional Clean Cars 4 All funds have been successful in encouraging low-income residents to switch fuel inefficient cars for BEVs and PHEVs.

Additional rebate amounts through Clean Cars 4 All depend on the air quality district participating, but in the Bay Area, rebates for BEVs range between $5,500 and $9,500 depending on income levels, when including funds from both the EFMP and Clean Cars 4 All. Buying a BEV also makes these customers eligible for $2,000 toward installing an at-home charger. Finally, the program offers $7,500 towards alternative mobility, such as public transit cards in lieu of funds toward a replacement vehicle.

California Cash for Clunkers

California has its own Cash for Clunkers program, which was recently renewed. California’s program is called the Consumer Assistance Program (CAP) and provides rebates of $1,000 or $1,500 to drivers whose cars fail the state’s smog test, or for low-income Californians wishing to scrap their car.

However, this program merely encourages drivers to retire their cars for the rebate and doesn’t incentivize consumers to buy a new, more fuel-efficient vehicle. California’s Cash for Clunkers program only applies to cars that fail the state smog test, which can’t be driven anyway.  

Cars that pass the test and are driven by low-income drivers are also eligible. However, the amount rebated by the Cash for Clunkers program is less than can be gained from participating in the EFMP, so low-income drivers would gain a greater advantage from participating in the EFMP rather than Cash for Clunkers if their air quality district offers the program.

Aligning Federal and State Policies

Senator Schumer’s clean car proposal echoes many of the pros of the various policies laid out above. However, he does not offer a way to pay for the plan, and it is unlikely to gain enough Republican support to survive a filibuster, even if the Democrats win the Senate, House, and presidency in 2020.

According to Schumer, the proposal would help the U.S. transition to a future in 2040 where all cars on the road are clean. There are roughly 270 million cars in the U.S. currently, and this plan would transition about one-fifth of them to electric or lower-emission.

Auto manufacturers and labor support Schumer's proposal because $392 billion would be available to Americans to purchase clean cars assembled in the U.S. While this would undoubtedly help the American car industry and keep manufacturing jobs in the country, unlike the 2009 Cash for Clunkers program, the aim of this proposal is to reduce GHGs, rather than bail out the auto industry.

Similar to the EFMP and Clean Cars 4 All program, Schumer’s proposal offers additional incentives to low-income Americans. Importantly, these incentives can be applied toward used vehicles, which allows EVs to become more accessible to those who cannot afford a new car.

Schumer’s proposal does not mirror the California Cash for Clunkers program, and the rebates the government would allocate would have to be applied towards the purchase of a new or used EV, rather than funds for any purpose as in the California program.

The California Cash for Clunkers program is not a very well-designed program. It narrowly applies to those few vehicles that fail their smog tests and does not offer additional funds to low-income drivers. Low-income drivers are eligible to scrap vehicles that pass smog tests under the program in some circumstances, but these Californians would earn more from scrapping their cars under the EFMP (if their air quality district offers the program).

Schumer’s proposal will succeed in part if auto manufacturers achieve design advances in the next several years, especially the American companies that would be eligible for the incentive. Americans overwhelmingly prefer SUVs and light-duty trucks, and as of now, very few of these models are available as EVs.

Electric SUVs currently available are generally luxury models out of reach for most Americans. In addition, it remains to be seen how large the incentives would be, whether additional funds for low-income consumers would put these vehicles within reach, and whether incentives would make EVs cheap enough to encourage Americans to ditch their gas-powered vehicles before the end of the cars’ lives.

However, the success of the EFMP in California shows how programs such as these can encourage drivers to switch to more fuel-efficient vehicles and assist low-income residents in acquiring these types of cars.

Nicole Larson

Research Assistant
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