Vehicle Scrappage and Gasoline Policy

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Tightened standards for new vehicles lead to reduced scrappage for used vehicles. [T]his effect offsets 13-23 percent of expected gasoline savings.

In Vehicle Scrappage and Gasoline Policy (NBER Working Paper No. 19055), authors Mark Jacobsen and Arthur van Benthem examine the timing of decisions to scrap used cars and the relationships between scrap rates, used car resale values, and policies designed to reduce gasoline use. They conclude that changes in the relative rates of scrappage of different types of used cars can have important effects on the fuel economy of the vehicle fleet, and thus on the ultimate impact of policies.

The authors develop a novel dataset that includes a detailed history of used vehicle prices and registrations at the make, model, and trim level. They first estimate the responsiveness of used vehicle prices and scrap rates to changes in gasoline prices. They confirm that higher retail gasoline prices mean that fuel-efficient cars are scrapped less while the largest, lowest-fuel-economy cars are scrapped more. Also, with higher gas prices, the resale value of fuel-efficient cars increases relative to the value of "gas guzzlers."

Next, they estimate the responsiveness of scrap decisions to changes in used vehicle values. They find that a 10 percent increase in used vehicle prices leads to a 7 percent reduction in the scrap rate. Using this estimate, they consider the effect that tightened standards on new vehicles will have in the used market. Prices of used vehicles generally rise under the standards, particularly for large and fuel-inefficient models. This reduces scrap rates, offsetting some of the expected gasoline savings. The authors estimate that this effect offsets between 13 and 23 percent of gasoline savings from mileage standard policies.

--Lester Picker