Ontario, Canada Looking to Increase Clunker Offer

It seems Peter Gorrie at The Toronto Star and I see eye-to-eye on the fact that the ‘Retire your Ride’ program here in Canada needs to be sweetened.

Ottawa, noting the frenzy over the American “Cash for Clunkers” program, is mulling whether to sweeten its incentive for taking gas-guzzling, polluting older vehicles off the road.

Canada’s “Retire Your Ride” offers the likes of $300 cash, transit passes and bike discounts to those who scrap cars built before 1996. It pales beside the Clunkers program, which pays $3,500 or $4,500 (U.S.) to those who exchange pre-2001 cars that consume more than 13 litres per 100 kilometres for new models that use less than 10.7 L/100km.

The Clunkers deal burned through its $1 billion (U.S.) allocation within days. Late last week, it got $2 billion more.

Will Canada copy Washington, Germany and others with generous giveaways? A spokesperson for Environment Minister Jim Prentice this week indicated that the answer is yes.

“Retire Your Ride was put in place before the economic stimulus measures now being introduced by other countries,” said Tracy Lacroix-Wilson,media relations advisor for Environment Canada. “Minister Prentice is currently evaluating the effectiveness of this program and considering if Canada should follow … in offering consumers a substantial financial incentive to scrap their old vehicles for environmentally friendly transportation options.”

Canada’s program is too small to have impact, environmental or otherwise. Its budget from its start-up last February until its scheduled conclusion in March 2011 is $92 million, with only two-thirds of that for actual incentives. To date, it claims to have “retired” about 11,700 cars, with another 10,000 or so approved. That puts it on track for its annual target, 50,000, says Lisa Tait of the Clean Air Foundation, the non-profit contracted to manage Retire Your Ride for Ottawa.”I think our program is doing quite well,” she says.

But the target is just one per cent of the 5 million pre-1996 cars still on Canada’s roads. Environment Canada says 1 million are deregistered annually, mainly because they can no longer be driven. Retire Your Ride aims to eliminate those still running, but “a comparison with retirement rates before and after … is difficult,” Tait says.

Ottawa needn’t match the Clunkers payments, Tait says, suggesting that something in the $1,000 range might suffice.

But before we leap it would be useful to look at the U.S. experience.

As an environmental program, Clunkers is pale green. According to analysts Edmunds.com, participants now drive vehicles that are 50 per cent more efficient than the wheels they traded in. Not bad, but Clunker deals represent a small fraction of the entire market. More crucially, the average fuel consumption of all cars sold in the two months before the program was 10.79 L/100 km; since then, it’s been 10.14 – a 6.1 per cent improvement. Since recent cars emit fewer pollutants, that should lead to slightly improved air quality. But it will save barely a drop of oil and do nothing for climate change.

Clunkers is also questionable as economic stimulus. It’s been a boon to car companies: The artificially induced demand let them reduce other incentives they offered when desperate for sales. But it’s just a blip. “This level of activity will not continue, as it reflects the behaviour of those anxious and able to participate in the program – and that is a limited set of people,” notes Jessica Caldwell, a senior analyst with Edmunds.

And it raises more general questions, equally applicable to policies like Ontario’s recently announced $10,000 subsidy for Chevy Volt buyers: Should such incentives reward for people who’d make the purchases anyway? And should governments transfer tax dollars from those who can’t afford new cars to those who can?

We’d get more for our money – and the environment and job creation – if governments stopped trying to buy votes and instead set meaningful standards, with financial and infrastructure support for those best able to achieve them.