We 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 e ect. 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 eff ects in gasoline cost: a gasoline price increase or decrease of $1 changes used vehicle prices and alters the number of fuel-efficient
versus fuel-inefficient vehicles scrapped by 16%. These relationships allow us to provide what we believe are the fi rst estimates of the scrap elasticity itself, which we nd to be about -0.7. When applied in a model of fuel-economy standards, the central elasticities we estimate suggest
that 13-16% of the expected fuel savings will leak away through the used vehicle market. This considerably reduces the cost-eff ectiveness of the standard, rivaling or exceeding the importance of the often-cited mileage “rebound” eff ect.
Joint work with Mark Jacobsen (University of California)
Keywords: fuel economy; scrap rate; gasoline policy; emissions leakage; incomplete regulation.
JEL codes: H23, Q58, L51.
