Institute of the Environment and Sustainability

One popular policy option to address environmental and economic concerns arising from current patterns of energy use is to subsidize increase in energy efficiency or renewable energy. In this paper we evaluate the lifecycle environmental bene�ts of the Car Allowance Rebate System (CARS) (or commonly `Cash-for-clunkers') which provided a subsidy for voluntary early retirement and replacement of low fuel economy automobiles with new, higher fuel economy vehicles. We �nd that the estimates of bene�ts hinge crucially on the assumption about what type of vehicle would have been purchased in the counterfactual scenario. Estimates are signi�cantly less sensitive to assumptions about the remaining useful life of vehicles traded-in and the rebound e�ect. Our prediction is that CARS program lead to a reduction of 9.1 to 17.8 million metric tonnes in greenhouse gas (GHG) emissions and 850 to 1600 million gallon reduction in gasoline use over a 13 year period. The average subsidy per tonne of avoided GHG lies between $142 and $278. Disaggregation of bene�ts based on the fuel economy of the clunker reveals opportunities for better aligning incentives and program bene�ts in future