Cars: How Green Is Cash for Clunkers Really?

At first blush, the success of the government's "Cash for Clunkers" program appears like a win for both the auto industry and the environment, a shining example of the way the Obama administration wants to rev up the economy by encouraging consumers and businesses to go green. So why is expanding such an ostensibly green program making environmentalists and members of Congress see red?

Cash for Clunkers is clearly popular, but it isn't exactly environmentally friendly, say critics. After the initial $1 billion was used up in less than a week, Congress is now proposing to extend the program with an additional $2 billion. That money would come out of the $6 billion that the Department of Energy received from the federal stimulus plan and has used to fund start-ups that build lightweight wind turbines, design new ways to store energy on electric grids, and create cheap solar panels for rooftops.

(Update published Aug. 6, 2009: One such start-up that's received this DOE money is Beacon Power Corp., a Massachusetts-based renewable energy company. Beacon creates devices that recycle and store energy on the electric grid, making the flow of electricity more efficient. The company received a $43 million loan guarantee through the DOE's stimulus program. This will help them borrow money from the federal government at an interest rate of no more than five percent, which gives them a crucial injection of credit and capital in this tight economy. "It was also a validation of our company and the work we're doing with the energy storage system on the grid," says Gene Hunt, spokesman for Beacon Power.

If the Senate approves the extension of Cash for Clunkers, the DOE would have not have the money to seed any new initiatives like Beacon Power; $4 billion has already been allocated to specific programs. "If you're looking at it from the perspective of growing a green economy, spending money on innovative green technology is a better use," says Carol Lee Brown, senior manager for the Transportation Program at Ceres, a Boston-based environmental group.)

Brown and other environmental advocates say the program is more focused on helping the auto industry than putting fuel-efficient cars on the road. Consumers receive rebates of between $3,500 and $4,500 when they turn in cars that are less than 25 years old and that get 18 miles per gallon or less, and then buy a new car. But consumers don't necessarily have to buy a particularly fuel-efficient car with the rebate. They could trade in a gas-guzzling sport utility vehicle for, say, a new truck that gets only slightly better gas mileage. "You're putting money out there and allowing people to make bad decisions," says Ann Mesnikoff, the director of the Green Transportation Program for the Sierra Club. The way the plan is currently written, we "don't know if we're seeing a big trend in people buying more fuel-efficient vehicles" says Mesnikoff.

Preliminary figures from the Department of Transportation do, however, suggest that drivers are mostly opting for cars with good gas mileage, which has helped win over some original opponents of the plan, who now support the $2 billion expansion. Among those now in the pro column: Senators Dianne Feinstein, Susan Collins, and Chuck Schumer. So does anyone other than environmental groups have a problem with current funding strategy? Despite supporting the expansion of Cash for Clunkers, both Feinstein and Department of Energy Secretary Steven Chu have said they wish the funding didn't come from the renewable-energy stimulus projects.

But so far, that concern hasn't translated into much action. The Senate seems poised to pass the bill more or less as it is now, with no additional strengthening of the miles-per-gallon requirements. "If I could write it, I would prefer it to say that people had to buy high-fuel-economy vehicles," Mesnikoff says. Until that happens, the economic and environmental benefits of the program may not truly be in sync.