The consumers in Figure 1 are those who were not already buying a clean car, but might decide to as a result of the subsidy. In a typical year, about 80 percent of consumers who purchase new cars trade in or dispose of a vehicle they already own—so, 20 percent of the market is excluded from the program right off the bat. Additionally, nearly half of the owners dispose of a vehicle but are not eligible for the Schumer plan due to the age requirement for cars. Another 9 percent are eligible, but are not incentivized to participate because the value of their trade-in exceeds the value of the Schumer rebate, so they would lose money if they participated in the program. That leaves just over 21 percent of gasoline car buyers who are eligible and incentivized to participate in the program, and only a fraction of these consumers will actually change their mind and purchase a clean car.
On the other hand, if eligibility criteria were relaxed, and the Schumer plan subsidy were offered to all new car buyers without requiring a trade-in, we estimate that clean-car growth would increase by 47 percent, with more than 146,000 additional clean cars purchased per year.
In short, only a small percentage of consumers is likely to actually choose to purchase a clean car under the Schumer plan, given the eligibility requirements for the program and the high likelihood that a consumer’s trade-in is worth more than the rebate. Like other large subsidy programs, most of the benefits under the Schumer plan would go to “non-additional” consumers—people who were going to buy a clean car, anyway.
Our analysis admittedly oversimplifies, but this work provides a concrete initial assessment of the Schumer plan. We hope that future work will consider downstream effects in the used car market, the scrappage impact on the evolution of the vehicle fleet, and a more nuanced general equilibrium analysis of the intertemporal growth of clean cars under the program.
The Schumer plan could certainly have greater impact as the clean-car market matures, since more people will be likely to choose one to begin with as clean car market share increases, and thus more people would be likely to take advantage of a clean-car subsidy. However, if the ultimate goal of the plan is to remove dirty cars from the fleet and increase the number of clean cars on US roads, policymakers may want to consider incentives that target a larger proportion of the car-buying population, to more effectively jump-start the transition to a cleaner transportation sector.
This research was supported by the Energy Foundation and the Merck Family Fund.