‘Money for Clunkers’ could slash gas prices, climate change — and Putin’s earnings

As evidence of Russian atrocities in Ukraine increasing, the US is once again grappling with our dependence on foreign oil. Although we produce more than we consume, we imported about 670,000 barrels per day from Russia last year — more than we imported from Saudi Arabia. At a recent price of $100 a barrel, that’s nearly $25 billion that feeds Russian President Vladimir Putin’s war machine. The US ban on Russian oil helps, but is small compared to Russia’s total exports.

The oil market is global. Continued reductions in US consumption will reduce Russia’s worldwide demand for oil and help lower oil prices. What we do in Kentucky and Kansas can help people in Kyiv and Kharkiv.

So, how can we cut our oil consumption and energy costs? President Biden wants electric vehicles (EVs) to make up half of all new car sales by 2030 and proposes higher incentives to do so. But selling more EVs does little to reduce the existing fleet of light internal combustion engine vehicles (cars, SUVs, and pickup trucks). Think of the existing fleet of combustion vehicles as a huge bathtub. The tub is filled with sales of new combustion vehicles and drained when the old ones are thrown away. The flow of new combustion vehicles into the body drops when people opt for an EV. But today’s 250 million bathtub-burning vehicles will continue to run, prop up oil demand and prices, finance wars — and fuel climate change, as they generate nearly 17 percent of US greenhouse gas emissions. And those vehicles last: even if EVs suddenly make up 100 percent of new vehicle sales starting today, it will be about 20 years before the fleet of all light vehicles on the road becomes 90 percent electric. The best way to empty the tub is to open the drain. Policies that accelerate vehicle retirement can do that.

Our research shows that a “Cash for Clunkers” (C4C) program where new car buyers are paid to dispose of their combustion vehicles will accelerate vehicle retirement, cut US oil consumption, accelerate the transformation of the transportation sector, increase consumer choice, and help achieve our climate goals. . Under the C4C, drivers who purchase a new EV will receive a cash incentive to have their old combustion vehicle decommissioned and recycled instead of trading it for resale. The inflow of new combustion cars into the tailgate decreases and the outflow of polluted old cars increases.

To gauge the potential, we simulated the evolution of the US vehicle fleet through 2050 using a model that combines consumer car buying behavior, light duty fleet, vehicle decommissioning, and the growth of the EV market. We found C4C to be effective with incentives from $7,000 to $12,000, similar to current and proposed levels. Also, in contrast to the 2009 program, the C4C must remain valid for many years, with eligibility limited to those purchasing a new EV. The design of this program leads to the most cost-effective reduction of oil consumption and greenhouse gas emissions as it initiates a virtuous cycle that amplifies its impact.

How? The more EVs purchased through C4C, the faster the EV industry and fleet will grow. Faster growth drives EV costs down through economies of scale, accelerates deployment of charging infrastructure, and increases the variety of EV brands and models available. Consumers’ familiarity with and willingness to buy EVs is accelerating. All of this further increases EV sales and the breakdown rate of virtuous cycle combustion vehicles.

EVs are now cheaper to run and produce lower CO2 emissions than combustion vehicles, even after accounting for emissions from EV manufacture and decommissioning, and even in states where coal is still used in electricity production. They also produce zero-tail-pipe emissions of pollutant criteria that disproportionately harm low-income communities and minorities, which can improve health and lower healthcare costs.

EV emissions fall further when the power grid that powers them is cleaner, so we’re also exploring how C4C can be scaled up with complementary policies that accelerate grid decarbonization. Renewable power sources are already growing and coal plants are shutting down, but not fast enough to meet our climate goals. Policies that promote clean power can accelerate decarbonization and, together with C4C, reduce emissions by more than their share, at a cost that is in line with the Environmental Protection Agency’s (EPA) estimate of the social cost of carbon.

Another important consideration: Policymakers interested in implementing C4C should coordinate with the automotive industry and its suppliers to mitigate supply chain shocks. C4C incentives can be phased out at higher incomes to promote equity. Our study does not examine the employment impact but others suggest that policies that encourage EV purchases and invest in domestic EV manufacturing can protect and create jobs in the US.

Our proposed C4C program is voluntary and broadens consumer choice. Americans who take part may receive more than cash in return. They can say goodbye to gas stations, help reduce oil consumption, create American jobs, protect us from the worst effects of climate change — and help deny Putin the income that underpins his regime.

John Steman is a professor at MIT’s Sloan School of Management and the faculty director of Sloan’s Climate Path Project.

David Keith is an assistant professor at MIT’s Sloan School of Management.

Their research is described in “Acceleration of Vehicle Fleet Turnover to Achieve Sustainable Mobility Goals,” published in The Journal of Operations Management.

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