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“Vehicle Scrappage and Gasoline Policy”AbstractWe estimate the sensitivity of scrap decisions to changes in used car values – the “scrap elasticity” – and show how it influences used car fleets under policies aimed at reducing gasoline use. Large scrap elasticities produce emissions leakage under efficiency standards as the longevity of used vehicles is increased, a process known as the Gruenspecht effect. To explore the magnitude of this leakage we assemble a novel dataset of U.S. used vehicle registrations and prices, which we relate through time via differential effects in gasoline cost: A gasoline price increase or decrease of $1 changes used vehicle prices and alters the number of fuel-efficient vs. fuel-inefficient vehicles scrapped by 18%. These relationships allow us to provide what we believe are the first estimates of the scrap elasticity itself, which we find to be about -0.7. When applied in a model of fuel economy standards, the central elasticities we estimate suggest that 12-17% of the expected fuel savings will leak away through the used vehicle market. This considerably reduces the cost-effectiveness of the standard, rivaling or exceeding the importance of the often-cited mileage “rebound” effect.Link to paperAbout the speakerMark Jacobsen is an associate professor of economics at the University of California, San Diego and a research associate at the National Bureau of Economic Research. He received his Ph.D. in economics from Stanford University. Jacobsen’s research focuses on environmental regulation and taxes and addresses two main themes: the first is environmental regulation of transportation and the automobile industry. The second considers optimal environmental policy in the context of the broader economy.Jacobsen’s work on transportation examines the impact of regulation to reduce gasoline use, including the Corporate Average Fuel Economy (CAFE) standards and gasoline taxes. He has studied both the efficiency and distributional effects of these policies, examining empirically consumer purchase behavior, the response of automobile manufacturers to regulation, and vehicle safety. A current project considers policy impacts on used car markets. Jacobsen’s research on optimal policy choice applies to a much wider set of environmental policies beyond transportation. He considers policymakers’ choices in the context of the broader economy, showing how Ricardian rents, untaxed activity in the informal sector, and political pressure to protect industry can act to change the type of environmental policy that is most efficient.Please see Professor Jacobsen’s webpage for more information