Page last updated at 00:01 GMT, Thursday, 12 March 2009

Critic hits out at car scrapping scheme

By James Melik
Business reporter, BBC World Service

traffic on road
The number of cars in the world is set to triple by the year 2050

Efforts to mirror a scheme which pays people to scrap their old vehicles and buy new ones has been condemned.

Incentives in Germany encouraging consumers to scrap old cars and buy new ones, thus boosting sales by almost a quarter in February, has been hailed a huge economic success.

Germany initiated a scheme whereby car owners are being paid 2.500 euro ($3,140; £2,230) to scrap any vehicle over nine years old and replace it with a new model.

Total sales hit their highest February level for 10 years, although exports slumped by more than half during the month.

Squandered resources

The idea is to get people to buy more energy efficient vehicles, and also to save jobs in the motor industry.

According to environmentalist George Monbiot however, it is an expensive way to cut carbon emissions "especially as there is a limited pool of money from the state".

One academic paper suggests that scrapping schemes could actually raise carbon emissions rather than reducing them
Environmentalist George Monbiot

"Money should be used to the best possible effect if we are trying to reduce the impact on the environment," he says.

"And that means as much carbon cut as we can for every pound that we spend."

He did a rough calculation to work out what the cost would be and found it to be in excess of £500 (542 euros; $690) a ton for cutting carbon dioxide.

"That is staggering - way more than a lot of other ways of reducing our carbon emissions," he says.

He advocates investing in nuclear power or wind farms or, more to the point, investing in energy efficiency, which can actually save money at the same time as saving on carbon emissions.

"Getting people to scrap their old cars and buy new ones is an incredibly ineffective and inefficient use of those pounds or euros or dollars," he says.

Underestimated

Mr Monbiot believes his calculation could be a wild underestimate of costs because there are several important factors he did not take into account.

The 2,500 euros paid out are probably offset by the VAT [value added tax] on the cars that are being sold
Ian Robertson, BMW

"There is one academic paper which suggests that scrapping schemes could actually raise carbon emissions rather than reducing them because of the carbon costs of manufacturing new cars," he points out.

But if people continue buying cars rather than travelling by public transport, or walking or cycling, isn't it better to try to make that driving as undamaging as possible?

"You can do that by means which don't require public expenditure," he says.

"You can do it by means which actually raise public money.

"One of the most effective is the banding of vehicle excise duty, when the more efficient your car is the less money you pay. That's the sort of incentive which doesn't cost the taxpayer a cent," he insists.

Mixed reactions

Supporters of the German plan include BMW board member Ian Robertson, who insists that rather than being an expensive scheme it would probably not cost governments anything at all.

In a recent interview with the BBC he said "the 2,500 euros paid out are probably offset by the VAT [value added tax] on the cars that are being sold, which would not have been sold otherwise".

He also reasons that it is keeping suppliers and dealers going, which is therefore having a good effect on the economy.

Calling for emission cuts
UN Environment Programme (UNEP)
International Energy Agency (IEA)
International Transport Forum (ITF)
FIA Foundation

The chief executive of the UK's Society of Motor Manufacturers and Traders is urging the government to follow Germany's lead.

Paul Everitt says maintaining a steady rate of fleet renewal is vital to combat the recent fall in new car registrations.

"We urge the government to implement the scrappage incentive scheme to take older cars off the road and boost the new car market," he says.

Dieter Zetsche, chief executive of BMW's main rival Daimler, which owns Mercedes, disagrees however.

"I am not a proponent of the scrapping scheme that is applied in Germany," he told the BBC last week, insisting that governments should act to make structural changes to the economy in an anti-cyclical way rather than try to change consumer behaviour.

"Governments should focus on fixing the banking system, or offer loan guarantees, thus freeing up lending to car buyers and the corporate sector, rather than meddle directly with initiatives such as the German scrapping scheme," he said.

Mr Monbiot would undoubtedly concur with Mr Zetsche.

"Instead of paying people to scrap their cars, we might as well burn ten-pound notes in power stations," he proclaims.



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