Black Monday Stampede

10 03 2010

July 1992: Tickets for U2’s ZooTV show at RFK stadium in Washington, DC go on sale by Ticketmaster.  The tickets are snapped up in a few hours, as fast as the phone lines could handle the traffic.  This was before anyone knew what the internet was (no Al Gore jokes).  Fortunately, a second date was announced and the roommate waited for the crack of 12:00:00 AM for a shot at the second batch, successfully.

March 1, 2010:  Federally funded rebates become available for efficient appliances in Iowa and Minnesota.  Phone lines jammed with 10 times expected volume and internet traffic at 100 times expected traffic took down the website of the contractor running Iowa’s program in the first hour, within minutes of opening.  Ultimately, Iowa’s share of the funds was gone within 8 hours.  Minnesota’s program dragged on until the next morning.  It was a Wal-Mart-style black Friday digital stampede.  Thank goodness for (don’t use Al Gore jokes) technology – I didn’t see any reported injuries or fatalities.

Some of these federally funded appliance incentives run two to ten times utility incentives.  What were they thinking?  Combined with utility incentives the total can exceed 50% of the purchase price for crying out loud.  See “Policy to Curb Carbon” (government doesn’t know how to do energy efficiency) and “Incentive or Discount” (people trained to wait for handouts to buy).  This is pretty much a giant transfer of wealth from people paying taxes to people taking the rebate checks, and I don’t begrudge the people taking the money.

Apparently the people who designed these state programs, which are actually handouts at these rates, don’t understand the market and/or supply versus demand.  Obviously they gave away too much money and taxpayers got far less than they should have for their “investment” in terms of reduced energy consumption, emissions, and sales and in some cases manufacturing here in the states.

And to top off the environmental benefits of the appliance programs, participants are to send their old appliance to the scrap heap, with self-policing enforcement.  Who’s going to do that?  They will either end up with a second refrigerator or freezer in the basement or the old stuff will show up on Craig’s list.

Recall cash for clunkers last summer.  The intent there was to offer a total of $1 billion incentives, up to $4,500 per vehicle and it was planned to run from late July through November.  Within a week or two the billion dollars was gone and congress quickly shoveled in another $2 billion.  THAT was all gone by Labor Day.

While attending the International Energy Program Evaluation Conference in Portland, OR, last fall I was engaged in a small group discussion – was cash for clunkers a free rider?  A free rider is somebody who takes an incentive for something they were going to do anyway.  This is considered to be a waste of incentive money.  That’s arguable in this clunker case because it more than likely moved the purchase date forward for buyers, but I also think it’s the wrong question to ask.  The more appropriate question is, was it cost effective?

Answering the free rider question, Edmunds estimates that of the 690,000 cars purchased through the cash for clunkers program only 125,000 were incremental.  That is, only 125,000 transactions took place that otherwise would not have.  The rest just displaced a sale that was going to happen soon anyway.  Figuring in free ridership, the taxpayer cost per vehicle was $24,000.  And then consider this: the average trade-in value of the clunkers was about $1,500, which may be worth $1,800 for sale to the next guy.  All these cars were destroyed.  That comes to $1.2 billion in destroyed working assets.  So the feds spent $3 billion to increase profits by car dealers by perhaps $125 million and destroyed $1.2 billion in assets.  Annual energy savings for these 125,000 vehicles would be roughly $120 million.  And maybe the domestic automakers lost a little less money as a result of the program.  Woohoo!

To be fair, the cash for clunkers program may have resulted in the purchase of more efficient vehicles than would otherwise be purchased.  Hardly.  The average fuel economy of cars sold through the program was 25.4 mpg.  The corporate average fuel economy for cars is 27.5 mpg and with light trucks included, it is 23.5 mpg.  In other words, these “efficient” cars were essentially average.

And the doozer of them all: free golf carts thanks to tax credits and sundry other incentives for electric / high mileage vehicles. 

These aren’t incentives.  They are gifts from frugal people to people who probably don’t need this crap.  But good for them, I say.  You have to play the game that’s put in front of you.

Policy to Curb Carbon

8 12 2009

Any carbon-reduction policy that includes paying Washington for permits to emit carbon is the wrong way to go.  Why?  Two words.  Social Security.

Washington has no spending restraint.  Earmark nation is alive and thriving.  Everyone has heard of the Social Security Trust Fund; Al Gore’s “lock box”.  Social Security has been running surpluses in the hundreds of billions of dollars per year for a long time.  If you think your payroll taxes are piling up for your retirement in a bunker under Washington somewhere, you are sorely mistaken.  Our profligate government has been taking the surplus and spending it on everything else, leaving behind “IOUs”.  Those IOUs are worth less than the lint behind my dryer because they will never be paid off.

What’s the point?  Permit revenue (tax) is supposed to be used for R&D for new fuel and fuel efficiency technologies, energy efficiency and so forth, per these bills.  Like social security and the state of Wisconsin’s disaster (see Energy Efficiency Oversight rant), this revenue will be pilfered for any number of other things including, for example, a congressman’s airport, a senator’s library, a study of mating habits of insects, why hog farms smell and so forth.

Instead, the drive to reduce utility-related carbon should come from utility and regulatory administered state programs, where consumers’ money spent to fund the reduction is plowed directly back into energy efficiency and low carbon production of energy.  Regulators and consumer advocacy groups ensure consumers get their moneys worth through independent program evaluations.

Yes.  I think that is the role of government.  To help ensure people don’t get ripped off.  If the feds get the money, who is going to watch them?  They have a dismal record of self-policing.  In fact, they practice bookkeeping methods that would land corporate accountants in jail.  Imagine if a corporation took employees’ contributions to their 401ks, replaced it with corporate bonds and called it revenue (ala the Social Security raid).  Without this switcheroo (watch the hand), those surpluses from the 1990’s were actually deficits.

Thanks to Wisconsin, we have a case study in failed government takeover of energy programs.  Let’s demand to avoid this scenario by ensuring Washington only gets the lint behind the dryer to control carbon.

written by Jeffrey L. Ihnen, P.E., LEED AP