Adding up the impact of cash for clunkers

The cash for clunkers program resulted in approximately 700,000 older, less fuel efficient cars being traded in for newer, more environmentally friendly vehicles. And the Detroit Free Press reports that the average miles per gallon of the new cars was 24.9, compared to 15.8 for the cars being traded in:

The U.S. Department of Transportation said vehicles purchased as part of the initiative have an average fuel economy rating of 24.9 miles per gallon — 59% higher than the 15.8 m.p.g. average of traded-in vehicles.

So let’s do a little back-of-the-envelope math. I’m going to round off the mpg numbers to 25 mpg and 16 mpg. If we use the standard average of 12,000 miles driven per car each year and multiply that times the number of cars traded in, the older cars would have used 525 million gallons of gas per year; the new cars will use 336 million gallons. That means our total consumption of gas per year will drop by 189 million gallons.

There are 42 gallons of gas in a barrel of oil, so this adds up to 4.5 million barrels of oil saved per year. That sounds like a lot, and it is, but it’s a drop in the, err, barrel compared to the 137 billion barrels of oil the United States goes through every year. Still, every little bit counts.

But it also costs us government revenue, not only because of the $3 billion spent on the program but also because of the drop in gas tax receipts. The federal tax on gas is 18.4 cents per gallon, which means a drop of $34.8 million in revenue from that tax. Michigan’s state gas tax is 19 cents per gallon, so the state will also lose millions of dollars in gas tax revenue due to the lower consumption.

Of course, that also may be balanced off by the increase in tax revenues resulting from the boost in employment in the auto industry, as well as the decreased outflow of state resources from thousands of workers getting back to work.