RE: [asa] Cash for Clunkers

I received this e-mail as well, and here was my response to it.

At first glance, the math seems right, and it's therefore interesting. However, I'm not sure of the conversion from 224 million gallons of gas / year to 5 million barrels of oil. It could be right, I just don't know.

But the logic is a bit off, because it oversimplifies the problem. The environmental impact of producing and refining 5 million barrels of oil, and delivering 224 million gallons of gasoline to filling stations across the country is quite a bit more, which was ignored in the calculation. Oil production, refineries, etc., consume a lot of energy. Then there is the environmental impact of hydrocarbons from all the extra fuel burned (in both producing and consuming), which may be significant.

On the other hand, NPR reported that one of the disputes about the Cash for Clunkers program is that they only require something like 21 MPG in the new cars (or an increase of 4 MPG over the clunker, I don't recall). When you figure in the amount of payback time for the individual consumer in cash savings on the gasoline saved, versus the thousands of dollars they had to put out in buying the new car, unless you're going from a gas guzzler to a Prius, it works out to something like several years for the savings to kick in. Then throw in the fact that they are encouraging people to go into debt at a time when the economy and our personal economies are struggling, it makes you wonder.

Jon Tandy

-----Original Message-----
From: asa-owner@lists.calvin.edu [mailto:asa-owner@lists.calvin.edu] On Behalf Of John Burgeson (ASA member)
Sent: Monday, September 21, 2009 3:12 PM
To: asa
Subject: [asa] Cash for Clunkers

For the record, I, myself, think the CARS program was not the best use of the money spent.

But some emails floating about don't seem to have their facts in order.

Here is one email -- and my response to it. Tell me what I am overlooking:

You may have seen this email (spam) from "a friend in the oil business":
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A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline.
A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year.

Therefore, the average "Cash for Clunkers" transaction will reduce US gasoline consumption by 320 gallons per year.

The government claims 700,000 vehicles were sold, so that equals a savings of 224 million gallons per year.
224 million gallons equates to a bit over 5 million barrels of oil.
5 million barrels of oil is about ź of one day's US consumption.
Also, 5 million barrels of oil costs about $350 million dollars at $70/bbl.

Can you believe it? We spent $3 billion to save $350 million.

-------------------------------------

The person "in the oil business" doesn't seem to know much about the oil business.

He seems to think that a barrel of oil = 45 gallons of gas.

The average, which varies among refiners, is about 19 or 20 gallons/BBL. Assuming 20, the savings would be 11.2 million barrels of oil.So the annual savings, at $70/barrel, is about $784 million, not $350.

He also assumes all the savings occur only in the first year. If one assumes the average clunker had 4 years of useful life left, then the total savings would grow to $3.136 billion.

About a wash, EXCEPT that the $3.136 billion will be paid to our own people, and not to the Saudis. As such, it will stay in circulation here and add to the economy. Sent to the Saudis it will just be a wealth transfer.

There are other nuances one could add to this analysis. There is the cost of building the additional 700,00 cars, for example. On the other hand, will oil plateau at $70? I think not. Gasoline prices are at a low now. Watch them rise.

--
Burgy
www.burgy.50megs.com
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