What Cash For Clunkers Can Teach Us About Green Building Incentives

I have been watching with interest the voracious appetite for the $4500 "cash for clunkers" incentive program which rewards people for trading in less fuel efficient vehicles for new, more fuel efficient ones.  So many people have taken advantage of the program that it ran out of cash within a week of opening, though the $1 billion appropriation was expected to last until November.  Now the Senate is debating whether to pour an additional $2 billion into the program.

Very interesting, but what does this have to do with green buildings, you may ask.  I see it as a very interesting object lesson for structuring green building incentives.  Green building incentives have been very popular, and are often promoted in lieu of mandatory green building regulations.  What is hard, though, is getting the incentives right.  How much is enough to stimulate green building, while maintaining a responsible public fisc?

Las Vegas famously went very wrong with their original green building incentive program, so much so that it threatened to deplete the finances of the state of Nevada.  Essentially, the problem was the same in Las Vegas as it was for the clunkers--too much money was available from the outset with too few requirements, meaning that the program was oversubscribed.  Instead, a step-wise program would have been more reasonable for both LV and the clunkers. 

So, for Clunkers, if the program had started with a $1000 incentive, and been evaluated after 1-2 months, the incentive could have been enhanced.  Now, reducing the incentive will only garner public outrage instead of benefit. 

The lesson for government entities looking to implement incentive programs? Start out with the lowest reasonable incentive, then evaluate the program after a reasonable period to see if it has been successful.  If not, you can create higher incentives or relax the requirements.  


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Gregor - August 3, 2009 2:07 PM

That's a good point, Shari. The other incentive structure however that should have been changed was the MPG mileage spread. It obviously should have been much, much higher. The terms of the program should have at least mandated getting over the 30MPG threshold. As you may know, in the SUV class the MGP spread can be as low as a 2 MPG pick-up.

For this reason, most of the good work I have seen now on the program (and this was my first reaction when I saw the program announced) was that in aggregate its an energy-sink. In other words, a total farce and fiasco on every level.



Peter Troast - August 3, 2009 3:23 PM

An interesting proposition, but I'm not sure I agree. Cars and houses just aren't the same. I have lust for a Tesla (and, yes, even a Prius) but cannot muster the same buying motivation for insulating my attic. I know it's the right thing to do, but its not shiny, has no new leather smell, and doesn't sit in the driveway for the neighbors to envy.

I'm not familiar with the details of the Las Vegas situation, but the vast majority of efficiency incentive efforts (most, granted, in the form of subsidized interest rates) have been less than successful. The track record shows that jump starting efficiency requires something dramatic.

Of course, the clunkers program suffers most from too low an improvement bar. The same mistake should not be made on buildings. Set a stretch efficiency goal, and make the incentive real. Timid has been tried; now's the time for thinking big.

Chuck Becker - August 4, 2009 8:03 AM

I believe you have misread the demand. People want to get rid of old cars that don't have a value anywhere near $4500. All that happened here is that people want some free money. They got it and the program was incredibly successful. Could we have streatched it out more by offering less? Maybe, but your system of test and try will only train people to wait and see.
Further, Green building incentives are a completely different animal. While I agree that people are not willing to pay for green building and thus require incentives to encourage green development (see http://www.iowaenvironmentallawupdate.com/2009/04/articles/environmental-politics/how-did-it-get-started-politics-and-environmental-law/), punishing the first person in by raising the incentive later isn't the answer. Sometimes you need to be bold (as noted by the previous comment) and be prepared for sucess.

Rich Cartlidge - August 8, 2009 10:54 AM

I think another interesting connection here is the speculation that the additional money to fund the program may come from money previously headed towards renewable energy. While I must admit that this knowledge comes merely from something I overheard of TV I think that providing additional funding to this program through diverting funds for renewable energy would be a travesty.

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