Friday, July 31, 2009

What regulation can do

Back in May, the US government set tough new standards for vehicle fuel efficiency as part of its efforts to reduce greenhouse gas emissions. The regulations applied to the average fuel efficiency of new vehicles sold, which obviously does nothing to improve the efficiency of the existing vehicle fleet. So in order to handle that aspect of the problem, the government also introduced a "cash for clunkers" scheme, which would pay people to take inefficient vehicles off the road. The scheme offered up to US$4,500 for replacing an inefficient car with a more efficient one. And it has proved so popular that it has exhausted its funds in less than a week.

what this tells us is that a) the incentive - 10% of the average cost of a car - was very generous; b) Congress didn't allocate enough money; and c) these sorts of schemes work. Which raises the question of why we don't have a similar policy here. The government's obvious rejoinder would be to argue that they don't have any money and so can't afford it. But beyond that, the US has a large domestic car industry, while we do not. Over there, it was also a disguised stimulus, to prop up domestic manufacturing; in New Zealand, the money would go straight overseas. OTOH, we'd get more efficient cars out of it. We don't need to be as generous as the US - we could use much narrower targeting, for example - but we could certainly do something to get the most inefficient vehicles off our roads.