To accelerate the transition of passenger vehicles to electric vehicles (EVs), US senator Chuck Schumer proposed a Clean Cars for America plan in 2019, which outlined a policy that would link an EV purchase subsidy with a vehicle scrappage requirement. Linking a new vehicle purchase choice with a used vehicle scrappage requirement had been adopted before to speed up auto stock turnover. The most memorable of these was the Cash for Clunkers program, which provided cash vouchers for buyers of new cars who chose relatively fuel efficient new vehicles and provided sufficiently low fuel economy used gasoline vehicles to scrap.
Since the biggest contributor to greenhouse gas (GHG) emissions is transportation, reducing the carbon footprint of transport is crucial in the fight against climate pollution. While the Schumer plan was never enacted, scrappage policies are becoming more common around the world and are seen as a win-win situation for consumers and governments. As part of transportation decarbonization efforts, governments are exploring the possibility of implementing vehicle scrappage and purchase bonuses to support low emission vehicle sales and jobs in the automotive sector.
With scrappage programs, pollution-spewing vehicles become capital for the purchase of a clean car. What are some of the nuances involved, as outlined by the IEA?
Requirements: Scrappage bonuses require old vehicles to be turned in and scrapped in an environmentally sound way in order to benefit from a bonus for the purchase of a new vehicle. These are particularly appropriate where much of the current vehicle fleet is outdated and characterized by low average fuel efficiency, causing high GHG and air pollution emissions.
Types of incentives: Scrappage and purchase incentives can be designed leveraging:
- good practices on incentive size and design;
- bonus modulation according to fuel efficiency;
- bringing in car manufacturers for bonus financing: and,
- adding conditions for eligibility to maximize their impact.
CO2 emissions reductions: The vehicle fleet transformation induced by scrappage schemes is estimated to reduce CO2 emissions by 100,000 tons in the US, 200,000 tons in Germany, and 265,000 tons in France over the 2010-25 period.
Fuel efficiency: Most incentive schemes (China, France, Germany, Russia, Spain, the UK, the US) require scrapping a vehicle to be eligible for a bonus to purchase a new one. Italy and Japan provide two exceptions, as they deliver lower but still substantial purchase bonuses even without requiring consumers to scrap their existing vehicle. The most generous subsidies for car replacement are given in the US, ranging between $3,500 and $4,500 according to the vehicle type and the difference in fuel efficiency achieved through its replacement. Germany devotes the highest budget to scrappage schemes, allocating 5 billion euros, while Japan supports the highest number of sales at 2.9 million vehicles.
Other micromobility options: Bonuses for car scrappage can be designed to be used in combination with the purchase of bikes and other micromobility options, favoring a shift in transport modes, as well as an exchange for public transport passes. These options support modal shifts to low emission transport options.
Specialized vehicle incentives: Specialized scrappage bonuses can also be designed for heavy duty trucks, small delivery vans, corporate cars, taxis, and buses, involving the opportunity to retrofit and upgrade engines whenever possible. Depending on the particular context, retrofitting and repowering can be more cost effective than replacement for large, specialized vehicles such as trucks and buses. More generally, designing specific incentives for the renovation of fleets of corporate vehicles, commercial trucks, and heavy duty trucks can be particularly effective, accelerating the transition of entire fleets to low- and zero-emission vehicles.
States & Countries Implement Scrappage Programs
California: The Clean Cars 4 All program (formerly known as the Enhanced Fleet Modernization Plus-Up Program) helps get lower-income consumers into cleaner technology vehicles by retiring their older, higher polluting vehicles and upgrading to cleaner vehicles. Participants also have the option to replace their older vehicle for alternative mobility options such as public transit passes or an electric bicycle. The program is limited to vehicle owners residing in participating districts and those who meet income and vehicle requirements. Participants receive up to $9,500 towards the purchase of a new or used plug-in hybrid electric (PHEV), battery electric (BEV), or fuel cell electric vehicle (FCEV). They can also choose up to $7,500 in incentives to access public, private, and shared mobility options.
Colorado: The Vehicle Exchange Colorado (VXC) program helps income-qualified Coloradans recycle and replace their old or high-emitting vehicles with EVs. The VXC rebate will partially cover the upfront cost of the EV at the time of purchase or lease from an authorized automobile dealer. The program dispenses a rebate of up to $6,000 to a consumer who buys a new EV while surrendering an internal combustion engine (ICE) powered car. By late September, 45 people had participated.
France: France increased subsidies for the purchase of EVs as well as scrappage bonuses for low- to middle-income households. A new subsidy for the purchase of plug-in hybrids has been introduced. Eligibility for the scrappage bonus is conditional on CO2 emissions of the vehicle to be scrapped, the list price, and household income.
India: The Indian government has introduced numerous regulations in the last few years to benefit the automotive sector. One such initiative is the “Vehicle Scrappage Policy,” which was introduced originally in 2021. It’s a government-funded program to scrap and remove old and unfit vehicles and replace them with modern and new cars on Indian roads. Its primary goal is to create an ecosystem for phasing out unfit and polluting vehicles to achieve a lower carbon footprint in the country over time. The scrappage policy is anticipated to stimulate green mobility, shift towards environmentally friendly automobiles, and eventually push EV adoption as the country phases out older vehicles. Scrapping the one million commercial vehicles in the country over 15 years old will provide financial incentives for purchasing environmentally efficient vehicles and create replacement demand. Moreover, this will also modernize the country’s commercial vehicle (CV) fleet.
Spain: Spain approved a scrappage program involving more generous bonuses for replacing one’s vehicle with a low carbon option (electric and hydrogen vehicles) rather than a conventional one, for supplementary bonuses for more vulnerable households, and for replacing older vehicles. The scheme allocates €230 million to cars and €20 million to trucks and buses.
Vermont: Known as the Replace Your Ride program, the general framework of Vermont’s $12.3 million electric adoption program is similar to the old Cash for Clunkers program. The revised program was implemented because, while the use of plug-in EVs continues to grow as more models are available at lower price points, Vermont is not currently electrifying its transportation sector on pace to meet its energy and climate requirements. The state will now pay $3000 to a consumer to relinquish an ICE powered car and replace it with a new or used plug-in electric vehicle. The primary requirement is an annual income bracket calculation that is capped at $50,000 for an individual and $75,000 for couples. The vehicle being scrapped must be at least 10 years old from the current model year.