Demand Reduction > VSS-Detail

Vehicle Scrappage Schemes - In Detail

Policy/Programme Name

Vehicle Scrappage Schemes

Policy Approach

Fiscal

Policy Target

Vehicle purchase

Where implemented

Denmark (1994 to 1995); Canada; France (1994 to 1996); Greece (1991 to 1993); Hungary (1993 to present); Italy (1997 to 1998); Ireland (1995 to 1997); Norway (Only ran in 1996); Spain (1994 to present); USA.

Policy description

Vehicle scrappage schemes target older vehicles, which often have higher carbon emissions and lower fuel economies than newer vehicles, by offering a financial incentive to their owners to prematurely remove them from the road before the vehicle's lifespan is exhausted. CEMT (1999) note that two broad groups of scrappage schemes exist:

Cash-for-Scrappage

Here a payment is offered to participants for their vehicle regardless what the subsequent replacement decision taken by the participants is.

Cash-for-Replacement

Here a payment is offered to participants for their vehicle that is conditional upon participants subsequently purchasing a specific type of replacement vehicle, typically, but not necessarily, a new vehicle.

Targeted mode(s)

Impacts on energy

(-) Improved efficiency of vehicle stock
(-) Reduced carbon emissions
(-) Higher vehicle turnover/ energy input into manufacture and disposal
(+) Increased vehicle mileage

Potential carbon savings

LOW
Potential carbon savings depend on the remaining life of the targeted vehicle and on how the travel demand that was fulfilled by the scrapped vehicle is replaced (Kavalec & Setiawan, 1997). Dill (2004) also contends that savings are dependent on: how much earlier the vehicle was retired because of the programme; how many miles the vehicle would have been driven if it was not retired; the emissions levels of the retired vehicle; the emission levels and the vehicle miles travelled by the replacement vehicle, if there is one. As such, there is considerable difficultly in assessing potential carbon savings offered by the policy. This is compounded by the fact that Dill (2004) argues that current methods of estimating emissions reductions achievable by the policy are based on ungrounded assumptions and limited empirical evidence.
Spitzley et al.. (2005) also contend that little attention has been paid to the additional energy and emissions generated from the manufacture of replacement vehicles. Indeed, the CEMT (1999) discuss that the scheme shortens the average car's lifespan, and thus increases the amount of energy and emissions expended and materials used in the manufacturing, dismantling, scrapping and recycling of vehicles.
CEMT (1999) additionally contend that the carbon emissions reductions achieved may have been achieved by a do-nothing scenario within three years.

Timescale of implementation/result delivery

SHORT-TERM
Scrappage schemes could be implemented rapidly, however an overall greening of the car fleet is only likely to be evident in the mid-term.

Cost of implementation

MEDIUM
Running the scheme would incur significant costs – through vehicle inspections, fees offered to participants, scrappage costs, and other associated costs, and would likely need significant government support. Exact costs depend upon the sum offered to participants and the duration of the programme – i.e. if it is a one-off programme or sustained over a period of several years.
Lower offer prices may attract poorer-quality vehicles, but not necessarily the worst emitters as drivers of such vehicles may be unable to afford to purchase a newer vehicle owing to the low offer price. Additionally, it may attract the ones that are likely to be scrapped even in the absence of the programme. While this suggests offering a higher sum to participants, Spitzley et al. (2005) found that higher offer prices also attract higher quality vehicles, that are generally lower emitters owing to good car maintenance on the owner's behalf, and hence reduces the cost-effectiveness of the programme.
In order to have a cost effective scrappage scheme the World Bank (2002) discuss the need to target high usage, high emission urban vehicles that still have a significant residual life, even in the absence of scrappage schemes.
In order to enhance the cost effectiveness of the scheme the World Bank (2002) contend there would need to be a system to ascertain in each case whether the costs to repair the vehicle to reduce emissions to a reasonably lower level, e.g. by retrofitting catalytic converters, exceed the market value of the vehicle or not. If so then the vehicle should be scrapped.
CEMT (1999) also contend that other policies may be more cost effective in reducing emissions, such as vehicle excise duty: indeed Kavalec & Setiawan (1997) cite that one scheme in California was considered unjustifiable on economic grounds, finding it more prudent to utilise the best available alternative control technology to achieve equivalent emissions reductions.

Achievements so far

A study by CEMT (1999) ascertained that few scrappage schemes worldwide quantitatively assessed their impact on the environment, carbon savings or cost effectiveness with regards to environmental protection, thus it is difficult to accurately assess the policy's achievements. Furthermore, carbon savings hinge on motor manufacturer's strict adherence to the Voluntary Agreements, and as the Voluntary Agreements have so far failed to deliver the targeted increases in fuel and engine efficiency, it is likely few carbon savings have presently been made.

Best practice examples

The Bay Areas Air Quality Management District, operating in the nine-county San Francisco Bay Area, California, has had a vehicle scrappage scheme in place since 1996. An empirical study on the scheme, conducted by Dill (2004), found that households with multiple vehicles were more attracted to the scheme than one car households. Vehicles were scrapped an average of 3 years earlier than anticipated. In the absence of the scheme, only 5% of participants would have scrapped their car, while 20% would have donated them to charity. 40% of participants would have sold their vehicles, and similarly large shares said they would have kept the vehicle. The scrapped vehicles were driven less than average, as 60% of participants stated that the vehicle needed repairs to run well. Additionally, 73.6% of participants thought they were driving the same amount in the replacement vehicle as they had in the scrapped vehicle, while 13.2% thought they were driving more, however 13.2% thought they were driving less owing to having fewer vehicles in their household, thus helping to mitigate increases in mileage. Only 6.8% of participants are no longer driving a vehicle as their principle mode of transportation: 47.7% of participants are driving a vehicle already owned by the household, while 43.4% have purchased an alternative vehicle. However, of those that purchased an alternative vehicle, most purchased a vehicle older than the fleet average.
However, Dill did not look at carbon emissions and there are several issues associated with these findings: Dill contends that people often overestimate the lifespan of their vehicle, and thus the vehicles may not have lasted for 3 years. Secondly, it was found that certain types of high-use vehicle owners are not taking part in the scheme: in particular low-income households and one car households.

Certainty of deliverability

LOW
Spitzley et al. (2005) and Dill (2004) both highlight the problems of: accurately estimating vehicle mileage replaced; the emissions from vehicles to be scrapped; substitute vehicle emissions; and the potential for vehicle scrappage with no financial incentive programme in place, as the natural renewal rate of the fleet would probably replace the same old vehicles in around two to three years.
Decreased emissions achieved through the scheme could be offset by increased total vehicle miles travelled caused by participants in the scheme purchasing more reliable vehicles. As such there is a low probability of the scheme delivering significant carbon savings.
Participants in scrappage schemes may be using the scheme to dispose of a vehicle they were planning to scrap anyway so that that cars no longer in use will be presented as qualifying for a scrappage incentive. The World Bank (2002) suggests that vehicles must actually be driven to the scrappage centre in order to qualify for the fee.
Alternatively, scrapped vehicles may not be in a poorer condition than the fleet average.

Public acceptability

MEDIUM
A study by Dill (2004) found that participants valued the ease of the transaction, particularly compared to selling their vehicle privately, and were hence willing to accept a lower price for their vehicle, attributable to the reduced costs associated with selling their vehicle (i.e. advertising costs), and so were in high support of the policy. However, a study by Kavalec & Setiawan (1997) found that participation levels in scrappage schemes are highly sensitive to the offer price, and so if it is set too low then the scheme is likely to not be well received. Furthermore, low income households may be excluded from participating in a cash-for-replacement scheme, particularly if it is stipulated that a brand new car be purchased, and so may lower the scheme's acceptability.

Barriers to implementation

Funding - Scrappage schemes will require considerable funding as they are not revenue raising. Thus in the absence of a secure funding stream the scheme will be unable to operate.
Income - Emissions will only be significantly reduced if participants in the scheme purchase new vehicles: those in low income households may be unable to afford new vehicles, and will either be excluded from participating or may purchase vehicles that are older than the fleet average.
No accurate way of identifying gross polluters – An accurate way of identifying gross polluters is required to target high usage, high emission urban vehicles that still have a significant residual life in the absence of the scheme (Dill 2004). As CO₂ was not measured on new cars until 1997, this could be difficult.
Rebound effects – see below

Advantages

Environmental
- Speeds up the rate of introduction of more efficient technologies with regards to fuel consumption, engine efficiency and emissions to the car fleet as a whole, however there is no empirical evidence to support this assumption.
Economic
- May stimulate the purchase of new vehicles, economically benefiting motor manufacturers.
Social
- The scheme reduces in transaction costs associated with privately selling a vehicle, benefiting households.
- May lead to urban air quality improvements, particularly benefiting those with respiratory disorders.

Disadvantages:

Environmental
- Participants may increase their vehicle miles travelled owing to driving more reliable vehicles, increasing carbon emissions; however there is no empirical evidence to support this.
- Uncertain emissions benefits (Spitzley et al., 2005).
Economic
- Fewer components may be available for the used vehicle/parts market (Spitzley et al., 2005).
- The cost of scrappage and requirements for disposal and recycling of vehicles proposed in the End of Life Vehicles Directive (Fergusson, 2007), could be passed on to new car prices.
Social
- If vehicle miles travelled are increased owing to the policy, then increased noise pollution and congestion levels may be experienced.

Equity issues

Kavalec & Setiawan (1997) contend that scrappage schemes may have adverse impacts on low income households by significantly affecting the price of the lowest cost vehicles on the market.
Cash-for-replacement scrappage schemes, particularly those that stipulate participants have to purchase a brand new car, are inequitable to low income households as it is unlikely they will be able to afford to purchase a new car, even with the fee gained from participating in the scheme.

Potential policy synergies

There are potential policy synergies with:
- Car emissions testing
- Congestion charging
- Car Labelling
- End-of-Life Vehicles Directive
- Low emission zones
- Mandatory minimum standards
- Vehicle Excise Duty
- Voluntary Agreements

Potential policy clashes

Vehicle Purchase Tax

Necessary next steps

The cost effectiveness of the scrappage policy should be compared with other options for reducing emissions, particularly Vehicle Excise Duty, which can successfully remove the most polluting vehicles from the road, as was the case in Germany (CEMT, 1999).
If it is decided to go ahead with the policy, then a reasonably accurate method of identifying gross polluters is required.
It is then important to decide at which level the fee will be set, and whether to implement a cash-for-scrappage or cash-for-replacement scheme.
Dill (2004) suggests that the method in which the programme is advertised influences who participates, and hence the vehicles that are scrapped, thus marketing methods and the target audience should be carefully considered.

Necessary synergies

Where congestion charging has been implemented, variable charges depending upon the emissions characteristics might provide incentive to participate in the scrappage scheme, as the most polluting vehicles would be charged at a higher rate to enter the cordon than cleaner vehicles.
Deep-seated and sustained carbon emissions reductions owing to the scheme depend upon the effective operation of the Voluntary Agreements between motor manufacturers and the Government, in order to reduce emissions from new generations of vehicles (CEMT, 1999). At the same time action is also required in order to make manufacturers more accountable for the environmental impacts of vehicle construction and dismantling in order to lessen the impact of the manufacturing and dismantling processes – e.g. through the End-of-Life Vehicles Directive (Fergusson, 2007), Corporate Social Responsibility reporting, etc.
Vehicle Excise Duty gradients structured so that drivers of the most polluting vehicles are paying the highest charges may also encourage people to participate in the scrappage scheme.
In order to stimulate a modal shift it may be prudent to offer free or discounted public transport pass to participants.
Emissions depend on vehicle maintenance, and as such regular tune-ups and servicing through car emissions testing can reduce the likelihood of compromised engine efficiency and premature scrappage.

Rebound implications

Dill (2004) and Kavalec & Setiawan (1997) contend that if participants replace older vehicles with newer vehicles then they may drive more owing to the increased reliability of the newer vehicle, thereby increasing emissions.
A participant may scrap a small car, and buy a larger, more inefficient vehicle, resulting in a decrease in fuel efficiency.
Dill (2004) identifies that by offering participants a nominal sum of money – e.g. £250, it is likely that participant's will simply go out and buy another old vehicle with poor quality emissions rather than a newer, more efficient, and inevitably more expensive vehicle.
The World Bank (2002) suggests the policy may encourage lower income households to hold on to their old vehicles longer than they would have done as replacement vehicles may cost more owing to the introduction of the scrappage scheme.

Sources of literature

Attwood, D. (2006) Car scrappage plans could push up prices. The Irish Times. March 15^th 2006. http://www.ireland.com/newspaper/motors/2006/0315/1141298113640.html - accessed 03/09/2007.

Conférence Européenne des Ministres des Transports (CEMT) (1999), Conclusions and Recommendations on Scrappage Schemes and Their Role in Improving the Environmental Performance of the Car Fleet, http://www.cemt.org/topics/env/CM9926Fe.pdf - accessed 20/07/06.

Dill, J. (2004), Estimating emissions reductions from accelerated vehicle retirement programs, Transportation Research Part D, 87-106.

Kavalec, C. & Setiawan, W. (1997), An analysis of accelerated vehicle retirement programs using a discrete choice personal vehicle model, Transport Policy, 4(2), 95-107.

Fergusson, M. (2007) End of life vehicles (ELV) directive, An assessment of current state of implementation by Member States. A report for the European Parliament's Committee on the Environment, Public Health and Food Safety. (IP/A/ENVI/FWC/2006-172/Lot 1/C1/SC2)

Spitzley, D.V., Grande, D.E., Keoleian, G.A. & Kim, H.C. (2005), Life cycle optimisation of ownership costs and emissions reduction in US vehicle retirement decisions, Transportation Research Part D, 10, 161-175.

World Bank (2002), Urban Air Pollution: Can Vehicle Scrappage Schemes Be Successful?, http://lnweb18.worldbank.org/sar/sa.nsf/Attachments/Briefing8/$File/Briefing_Note_No_8.pdf - accessed 21/07/06.