Many governments around the world have introduced scrapping schemes during the last financial and economic crisis. In Europe, they were especially popular during the year 2009. Governments aimed to counteract the sharply declining demand for cars, while at the same time promoting cleaner cars with lower CO2 emissions. The effectiveness of the scrapping schemes for both of these objectives remains an open question. Most recent empirical work has looked at the 2009 ‘Cash for Clunkers’ programme in the US, which cost $2.85 billion and lasted for only one month. Li et al. (2013) find positive short-term effects on car sales (as do Mian and Sufi 2012), but the effect eroded over a longer time horizon, and the environmental benefits were small. In Europe, Sinn (2009) questioned the environmental benefits of the 2009 German scrapping programme. He argued that the fuel savings from replacing old gas guzzlers with new cleaner cars are lower than the energy cost of producing these new cars.
In a recent paper (Leheyda and Verboven 2013), we have quantified the demand and environmental effects of the European scrapping schemes during the financial crisis. Many European countries introduced these schemes at different moments in time, and typically for a longer period than the ‘Cash for Clunkers’ programme in the US. Two main types of schemes have been adopted:
- Non-targeted scrapping schemes do not specify eligibility criteria, so that they apply to virtually all new cars regardless of their CO2 emissions.
Such schemes were introduced in Germany, the Netherlands, and the UK.
- In contrast, targeted scrapping schemes specify certain conditions on the cars that can be purchased, especially on maximum CO2 emissions.
These schemes applied in France, Italy, Portugal, and Spain. For instance, under the French scheme of 2009, cars were eligible if their CO2 emissions did not exceed 160 grammes per kilometre.
We analyse monthly car sales from 2005-11 in nine European countries. We consider the sales evolution of essentially all car models and their engine variants. For each car, we know whether it was eligible (depending on its CO2 emissions and other factors), and we know the size of the subsidy (in absolute terms and as a percentage of the purchase price). We measure the policies’ impact by comparing the sales evolution of each car before and after the policy, using countries that did not (yet) adopt a similar policy as a control group.
Table 1 shows the main findings from this analysis – the estimated effects of the schemes on total sales, and on the average fuel economy of new cars.
Demand stabilisation effects
Our first main finding (left part of Table 1) is that the scrapping schemes had a strong stabilising impact on total car sales – in the crisis year of 2009, they prevent a further total sales reduction of 15.9%. The stabilising impact was especially strong in countries that adopted targeted schemes. In those countries, total sales in 2009 would have been 17.4% lower in the absence of such schemes (and 21.1% lower for the eligible cars). However, there was also a strong stabilising impact in countries that did not target their schemes to cars with low CO2 emissions, as they avoided a sales drop of 14.8%.1
Table 1 Impact of removing scrapping schemes on total sales and fuel consumption
Although scrapping policies stabilised sales in all countries, their individual performance varies. For instance, the German non-targeted scheme in 2009 prevented a sales drop of 17.6%. The effect was smaller in other countries with non-targeted schemes – in the UK sales would have been 13.3% lower, and in the Netherlands they would have been 4.4% lower. In most counties with targeted schemes, the stabilising effect was stronger. In Spain, sales would have been 20.3% lower without the scheme.
Perhaps surprisingly, we also find that countries that followed targeted schemes did not protect sales of their domestic producers better than countries that followed non-targeted schemes. For instance, in France (with a targeted