Vehicle Scrappage and Gasoline Policy

Abstract

We estimate the sensitivity of scrap decisions to changes in used car values -the "scrap elasticity" -and show how it influences used car fleets under policies aimed at reducing gasoline use. Large scrap elasticities produce emissions leakage under efficiency standards as the longevity of used vehicles is increased, a process known as the Gruenspecht effect. To explore the magnitude of this leakage we assemble a novel dataset of U.S. used vehicle registrations and prices, which we relate through time via differential effects in gasoline cost: A gasoline price increase or decrease of $1 changes used vehicle prices and alters the number of fuel-efficient vs. fuel-inefficient vehicles scrapped by 18%. These relationships allow us to provide what we believe are the first estimates of the scrap elasticity itself, which we find to be about -0.7. When applied in a model of fuel economy standards, the central elasticities we estimate suggest that 12-17% of the expected fuel savings will leak away through the used vehicle market. This considerably reduces the cost-effectiveness of the standard, rivaling or exceeding the importance of the often-cited mileage "rebound" effect.

Attribute substitution in household vehicle portfolios

“…Increases in the fuel economy of initial kept vehicles due to an increased standard will increased demand for used fuel‐inefficient vehicles. The increase in demand will lead used gas guzzlers to be more valuable, and thus more slowly retire from the fleet (similar to the effect documented in Jacobsen and van Benthem (2015)). Furthermore, it cannot realistically be argued that fuel economy of the bought vehicle will be constrained by the standards themselves.…”

The Macroeconomic Effects of 2017 Through 2025 Federal Fuel Economy and Greenhouse Gas Emissions Standards

“…The first segment evaluates the welfare implications of CAFE from a microeconomic perspective (Austin & Dinan, ; Jacobsen, ; Kleit, ; Klier & Linn, ; Leard et al., ; Liu et al., ). Related studies have examined the effects of CAFE on costs of production, new vehicle prices, vehicle sales, used vehicle prices, vehicle scrappage rates, fleet fuel economy, and vehicle safety (see, e.g., Anderson & Sallee, ; Austin & Dinan, ; Bento et al., ; Clerides & Zachariadis, ; Goldberg, ; Greene, ; Jacobsen, ; Jacobsen & van Benthem, ; Klier & Lin, ; McAlinden et al., ). In addition, several authors have compared the welfare effects of CAFE with those of an alternative price instrument (i.e., a higher gasoline tax or carbon tax), and found that the latter is more cost effective (e.g., see Austin & Dinan, ; Davis & Knittel, ; Goldberg, ; Karplus et al., ; Kleit, ).…”

Public Transit Bus Procurement: The Role of Energy Prices, Regulation and Federal Subsidies

“…These studies have generally concluded that both new vehicle purchases and used vehicle scrappage respond to gasoline prices (Li, Timmins, von Haefen 2009, Klier and Linn 2012, Knittel 2012, and Jacobsen and van Benthem 2013. At the intensive margin, households reduce driving where gasoline price rises (Small andvan Dender 2007, Gillingham 2013).…”