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EUROPEAN CONFERENCE OF MINISTERS OF TRANSPORT

CLEANER
CARS
Fleet Renewal
and Scrappage
Schemes

GUIDE TO GOOD PRACTICEEUROPEAN CONFERENCE OF MINISTERS
OF TRANSPORT (ECMT)The European Conference of Ministers of Transport (ECMT) is an inter-governmentalorganisation established by a Protocol signed in Brussels on 17 October 1953. It is a forum inwhich Ministers responsible for transport, and more specifically the inland transport sector, canco-operate on policy. Within this forum, Ministers can openly discuss current problems and agree
upon joint approaches aimed at improving the utilisation and at ensuring the rational developmentof European transport systems of international importance.
At present, the ECMT’s role primarily consists of:– helping to create an integrated transport system throughout the enlarged Europe that is
economically and technically efficient, meets the highest possible safety and environmental
standards and takes full account of the social dimension;– helping also to build a bridge between the European Union and the rest of the continent at apolitical level.
The Council of the Conference comprises the Ministers of Transport of 39 full Member
countries: Albania, Austria, Azerbaijan, Belarus, Belgium, Bosnia-Herzegovina, Bulgaria, Croatia,
the Czech Republic, Denmark, Estonia, Finland, France, FYR Macedonia, Georgia, Germany,
Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Moldova, Netherlands,
Norway, Poland, Portugal, Romania, the Russian Federation, the Slovak Republic, Slovenia, Spain,
Sweden, Switzerland, Turkey, Ukraine and the United Kingdom. There are five Associate member
countries (Australia, Canada, Japan, New Zealand and the United States) and three Observercountries (Armenia, Liechtenstein and Morocco).
A Committee of Deputies, composed of senior civil servants representing Ministers, prepares
proposals for consideration by the Council of Ministers. The Committee is assisted by working
groups, each of which has a specific mandate.
The issues currently being studied – on which policy decisions by Ministers will be required –include the development and implementation of a pan-European transport policy; the integration ofCentral and Eastern European Countries into the European transport market; specific issues relating
to transport by rail, road and waterway; combined transport; transport and the environment; thesocial costs of transport; trends in international transport and infrastructure needs; transport forpeople with mobility handicaps; road safety; traffic management; road traffic information and newcommunications technologies.
Statistical analyses of trends in traffic and investment are published regularly by the ECMTand provide a clear indication of the situation, on a trimestrial or annual basis, in the transport
sector in different European countries.
As part of its research activities, the ECMT holds regular Symposia, Seminars and Round
Tables on transport economics issues. Their conclusions are considered by the competent organs of
the Conference under the authority of the Committee of Deputies and serve as a basis forformulating proposals for policy decisions to be submitted to Ministers.
The ECMT’s Documentation Service has extensive information available concerning thetransport sector. This information is accessible on the ECMT Internet site.
For administrative purposes the ECMT’s Secretariat is attached to the Organisation for
Economic Co-operation and Development (OECD).
Publié en français sous le titre :ASSAINIR LE PARC AUTOMOBILE
Programmes de renouvellement et de mise à la casse
Further information about the ECMT is available on Internet at the following address:
http://www.oecd.org/cem/
 ECMT 1999 – ECMT Publications are distributed by: OECD Publications Service,
2, rue André Pascal, 75775 PARIS CEDEX 16, France.

FOREWORD

The focus of efforts to reduce exhaust emissions from vehicles is throughimproving the performance of new vehicles. Industry invests large amounts ofmoney in improving engine technology and reducing fuel consumption.
Governments have sought to generalise and accelerate these improvements
mainly through emissions regulations, and recently through voluntaryagreements with industry in regard to CO2. The full effects of these
improvements, however, are not felt immediately as fleet renewal takes time – adecade on average in the Europe Union.
Fleet renewal incentives can be used to accelerate the uptake of newtechnologies and new vehicles. They have been employed by a number ofgovernments around the world usually with the stated aim of improving
environmental protection, and often with accompanying goals of lifting
economic growth and supporting the car manufacturing industry.
This report presents a framework for analysis of the effectiveness ofvehicle scrapping schemes in protecting the environment. It reviews theschemes introduced to date by governments in Europe and North America andmakes recommendations on the design of effective incentive schemes.
The ECMT is grateful for the help of Michele Fontana of the Departmentof Public Economics, University of Pavia, and the Institute of Energy
Economics, Bocconi University, Milan – principal author of the study.

3

TABLE OF CONTENTSINTRODUCTION............................................................................................. 7
1.

THE EFFECTS OF SCRAPPING SCHEMES ON THE CAR
MARKET AND THE NATIONAL ECONOMY................................... 15
1.1. New car sales ................................................................................... 15
1.2. Prices and industry profits ............................................................... 22
1.3. The effects on the national economy ............................................... 25

2.

THE EFFECTS OF SCRAPPAGE PROGRAMMESON THE ENVIRONMENT .................................................................... 27
2.1. What are the main environmental impacts to be evaluated?............ 27
2.2. The estimate of the change in atmospheric emissions ..................... 31
2.3 The design of the scheme and effects on the relevant variables ...... 35
2.4. The cost-effectiveness of scrappage schemes.................................. 50
2.5. What are the main policy tools alternative to scrappage schemes? . 54
2.6. The benefits of reducing atmospheric emissions ............................. 57
2.7. Some lessons from the schemes implemented in the past:
the selection criteria......................................................................... 60

3.

CAN SCRAPPAGE SCHEMES BE USEFUL IN FORMERSOCIALIST COUNTRIES? ................................................................... 67
3.1. The case of Hungary ........................................................................ 67
3.2. The general context: some characteristics of the recent
evolution of Eastern European car fleets ......................................... 71
3.3. The possible role of scrappage schemes in
Eastern European countries ............................................................. 75

CONCLUSIONS AND RECOMMENDATIONS.......................................... 79
NOTES............................................................................................................ 85
BIBLIOGRAPHY ........................................................................................... 90

5

INTRODUCTION

Several countries within and outside Europe have implemented scrappage
schemes during the 1990s. Incentives for scrapping old cars were given by
Greece (1991-1993), Hungary (1993 up to the present) Denmark (1994-1995),
Spain (1994 up to the present), France (1994-1996), Ireland (1995-1997),
Norway (1996) and Italy (1997-1998). Various local governments in the UnitedStates of America and the Canadian Province of British Columbia have also
implemented such schemes.
The main objectives of the schemes have usually been listed as follows:-

stimulating the national car industry and the national economy byboosting new car purchases;
improving transport safety by introducing newer, safer vehicles;
reducing car exhaust emissions.

Only the environmental goal was identified by all the schemes examined.
The economic goal of stimulating the national car industry was only mentionedby those countries with a large national vehicle manufacturing industry.
The first aim of the present publication is to evaluate scrappage schemes asa policy tool to achieve an improvement in the environmental performance ofthe car fleet. The effects of scrappage schemes on safety are considered only toa limited extent, as there is little or no data available to assess them. In mostWestern countries the number of fatalities on the roads has decreased in recent
years, in spite of an increase in the number of kms travelled per year. However,
it is extremely difficult to determine what the contribution of improvements invehicle design is to this reduction, compared to other road safety policies
implemented by governments. Therefore, it is difficult to give any estimate of
the contribution of accelerated vehicle retirement to changes in road casualties
or injuries.
This publication also considers the main economic effects of scrappage
programmes, as an understanding of the car market and the economic variables

7affecting it is essential to assessing the effect of any incentive scheme. The firstsection of the publication is devoted to this analysis.
The environmental evaluation of scrappage schemes firstly addresses thesize of the emission reductions achieved. The analysis tries to clarify how these
reductions should be computed and identify what main variables influence theirsize. Among the several chemical substances contained in exhaust gases, thepublication focuses on those pollutants that are currently of major concern at
local and global levels. At the ‘local’ level, these are nitrogen oxides (NOx),sulphur oxides (SOx), particulate matter (PM), carbon monoxide (CO) andhydrocarbons (HC),1 together with some secondary pollutants (ozone; nitrateand sulphate aerosols) generated from the photochemical reaction of NOx, SOx
and HC in the atmosphere. As for the ‘global’ issues, the report is limited togreenhouse gas (GHG) emissions, focusing on carbon dioxide (CO2); a more
precise assessment should, however, account for methane (CH4) and nitrous
oxide (N2O) emissions as well.
Showing that an emission reduction can be achieved is not in itself enoughto indicate that a given policy tool should be implemented.
Thecost-effectiveness of the reductions achieved is of fundamental importance toassessing the value of any environmental policy instrument. Therefore, theanalysis tries to identify the main variables affecting the cost per tonne ofpollutant reduced, and how the design of scrappage schemes can be shaped to
improve cost-effectiveness. Finally, some consideration is also given to the
cost/benefit ratio of scrappage schemes, in an attempt to establish if and when
they are worthwhile.
As with any other cost-effectiveness and cost-benefit evaluation, it is very
important to make as clear as possible the evaluation framework chosen for the
analysis. It is useful to raise the following methodological issues.
Firstly, the costs and benefits of a scrapping programme must be assessedagainst a precise benchmark alternative. The simplest alternative to consider isthe option of non-intervention. Other alternative policies with the sameenvironmental goals should also be considered, e.g. enhancing the existing
inspection and maintenance (I&M) programmes or changing fuel taxation tointernalise externalities.
Secondly, the contribution of scrapping programmes to the given goals has
to be distinguished as clearly as possible from the contributions of otherpolicies. Transport sector regulation is complex and different policy tools
interact. For instance, environmental standards, I&M programmes and fueltaxes are often used at the same time to curb transport emissions. Car scrappage8

schemes must be evaluated within a given regulatory context. Their assessment
should account only for the additional contribution they give to improvementsin emissions and safety.
Finally, time and spatial boundaries for the costs and benefits of thescheme considered have to be set at the beginning of the evaluation and adhered
to. Car scrappage should be analysed ideally in the mid to long term. Cars are
durable goods and a vehicle bought now is intended to be used for several years
before being scrapped. Its purchase affects other purchasing decisions in the
future. This implies that any evaluation of the consequences of car scrapping
schemes has to cover several years and should try to explain how the different
variables behave through the chosen period in response to the scheme. ‘Static’or very short-term evaluations of the scheme may be too simplistic: they record
the boost in scrappage and new car sales due to the schemes, but they misspossible falls in sales after implementation in the longer-term. As regards thespatial boundaries of the evaluation, since both costs and benefits can be site
specific, the analyst should ensure that they are coherently evaluated according
to the specific objective of the scheme. If the objective is, for example,
reducing environmental damage in specific metropolitan areas, account should
be taken of the fact that emissions in densely populated areas have an impact
greater than the national average. Adjusting for this will produce a morefavourable cost/benefit ratio for such targeted schemes when compared tonational schemes. Large-scale scrappage schemes applied nationally may also
affect the international market for new and second-hand cars. This may causesome economic and environmental changes in other countries. Although costbenefit analyses are usually made at the national level, international effects
should also be briefly considered, for example, to avoid ecological dumping onother countries.
The final section of this publication assesses if and how scrappage schemes
might be used to achieve environmental improvements in former socialist
European countries. It analyses in particular the Hungarian experience withscrappage schemes. The information gathered from this case study and fromthe analysis made for Western countries is used, together with information on
trends in the Russian car fleet, to draw some general conclusions for Central andEastern European and NIS countries.

9Box 1. American and Canadian experience
USA. Section 108 (f) of the Clean Air Act Amendments (CAAA) of 1990
included ‘vehicle buy-back programmes’ in a list of Transportation Control
Measures (TCM) that companies (refineries, power plants, etc.) subject toemissions limits in ozone and CO non-attainment areas should consider for
reducing atmospheric emissions. HC and NOx emission reductions achieved
through car scrappage programmes are credited to the company financing thescheme which can either use them to meet the legal requirements in regard to its
polluting activities or exchange them on the emissions trading market as anemission reduction credit (ERC). The ERCs achieved through scrappage
schemes are valid for two or three years. Thereafter, other measures have to betaken by polluters to obtain the emission reductions required by the CAA.
In California in 1990, the oil company Unocal implemented the first - and still
one of the largest - scrappage schemes, the South Coast Recycled Auto
Programme (SCRAP). This was initially directed at retiring about 7 000 pre1971 model cars (i.e. older than 19 years). This was 2% of the pre-1971 cars incirculation in the targeted non-attainment area. US$ 700 per car was offered toretire eligible vehicles. While the scheme was operating, the Ford Motor
Company, some local dealers and the South Coast Air Quality Management
District authority gave additional funds, so that the programme ultimately
scrapped 8 376 vehicles. The California Air Resource Board also made acontribution to the programme by performing emission testing on a sample of
SCRAP cars and analysing the related data to compute the net emission
reduction achieved.
In 1992 two pilot projects were launched in Chicago and Delaware
non-attainment areas, retiring a few hundred old cars. Several other local
scrappage programmes were implemented in California from 1993 in the
Joaquim Valley, San Diego and Los Angeles areas. Similar schemes currently
operate in Phoenix and Chicago. The schemes are usually privately funded but
in a few cases (e.g. in the San Joaquim Valley) a local authority pays. In mostcases the bonuses given were US$ 500-600 per eligible car. The minimum age
required for a car to be eligible for the scrappage programmes is usually 15 to
20 years (the lowest limit, in the Delaware scheme, was 12 years). The eligible
vehicles were selected mostly among those that had recently failed an
Inspection and Maintenance (I&M) test. Not one of the implemented
programmes required the owner of the vehicle for scrapping to buy a new car inorder to get the bonus.

10Box 1. Cont.
In 1993, the Environmental Protection Agency produced some general
guidelines for the computation and use of ERCs achieved through scrappage
programmes. In October 1998, the California Air Resource Board proposed
regulations for voluntary, accelerated light-duty vehicle retirement schemes.
Canada. In 1996, a pilot programme was implemented in British Columbia(BC), with the target of removing 1 100 old vehicles in the regions of Victoria
and Lower Mainland. It was jointly funded by the BC Automobile Dealers
Association, the Canadian Petroleum Products Institute, BC Hydro and the
Vancouver and Victoria Regional Transit Commissions. Eligible vehicles had
to be 1983 models or older and had to have recently failed an I&M test. They
had to be driven to the scrap yard (to ensure that they were still working). The
scrappage bonus was differentiated according to the choice of the replacement
vehicle. The owners of eligible vehicles could receive C$ 750 (about US$ 550)
if they purchased a new model car; C$ 500 if the replacement car was bought on
the second-hand market (provided that the model was not older thaneight years). Otherwise, owners could choose to receive a one-year free transit
pass on the local public transport network, worth about C$ 1 000. The latter
was the preferred option.

11

Box 2 - The first European scrappage schemes
Greece was the first European country to introduce scrappage schemes, fromJanuary 1991 to March 1993. The first scheme was applied in the Athens areawith the purpose of accelerating the introduction of catalysed cars andimproving air quality in the region. A 40-60% reduction in the excise duty on
new cars was given as a bonus to anybody purchasing a new model, conditional
upon the scrappage of a car older than ten years. Other reductions in car
registration taxes and road charges were given outside the scrappage scheme toanybody who purchased new cars equipped with catalytic devices. The
scrappage programme was then extended to the whole of Greece. Bothprogrammes expired in 1993.
In September 1993 the city of Budapest in Hungary introduced a programme
directed at eliminating the many old two-stroke-engine cars and vans still in use(Trabant, Wartburg, Barkas models). Owners of a two-stroke-engine car who
scrapped and replaced it with one of five new environmentally friendly models
chosen by the government, were eligible for a bonus of Ft 100 000 (about US$
500). As an alternative option, they could obtain a one-year, free pass forthemselves and their families on the public transportation network in Budapest
if they did not replace their old car. The programme, which is still operating,
was later extended to the whole of Hungary. In this case, incentives wereawarded to the owners through car dealers and/or scrap operators, provided thatthey managed to purchase and scrap a minimum number of 200 two-strokeengine cars per year. Scrappage incentives have also been given for replacing
old buses and trucks (or their engines) with cleaner ones.
Denmark in 1994 introduced a DKr 6 500 bonus (US$ 1 000) for anybody who
scrapped a car older than ten years, independently of the choice of replacement
vehicle. The scheme lasted until the end of June 1995. The size of the
incentive given progressively decreased (every six months). An overwhelming
majority of vehicles were scrapped in the first six months: about 100 000 cars,slightly more than 6% of the fleet. About 11% of the owners replaced thesewith a new model and 19% bought another model older than ten years. A few
households did not buy any replacement vehicle. The scheme was estimated tohave caused between 0.6% and 1% reduction in the HC and NOx emissions of
the Danish fleet.

12Box 2. Cont.
France implemented its first scrappage scheme (Prime à la casse) in
February 1994. An incentive of Fr 5 000 (about US$ 950) was awarded if
people scrapped cars that were older than ten years and replaced them with newmodels. This corresponded roughly to 6% of the average cost of a new car in
1994. Further discounts were offered by car manufacturers and car dealers.
The scheme ended in June 1995. A second scheme (Prime qualité automobile)worth a bonus of Fr 7 000 ran from October 1995 to the end of September 1996.
The minimum age was lowered to eight years. The bonus was reduced to
Fr 5 000 for the replacement of relatively small sized cars. The two schemes
retired an overall number of 1 560 000 vehicles. A maximum scrappage rate of
8% was reached in 1996. The number of cars retired net of those that would
have been retired even without the scheme was estimated at about 700 000(CCFA, 1997).
Almost simultaneously with France, Spain introduced (in April 1994) a similar
scheme (Plan Renove I), giving tax relief ranging from Pta 85 000 to 100 000(US$ 630-750) as a bonus for people who scrapped a car older than 10 years
and replaced it with a new model. The 6 month scheme was renewed in
October and ran to the end of June 1995 as Plan Renove II, with the minimum
age for scrappage lowered to 7 years. In 1994 and 1995, respectively, 211 000
and 146 000 vehicles were scrapped and replaced under the schemes,corresponding to 11.5% and 7.4% of the fleet. The number of vehicles replaced
net of what would have been replaced anyway was estimated to be 199 000
units in 1994, with a negative result of 23 000 in 1995 (Licandro and Sampayo,1997). In 1996, a substantial reduction in the vehicle registration tax gave
another incentive - independent from scrappage - to new car demand. The
scrappage scheme was made permanent from April 1997 (Plan Prever).

13

Box 3. The most recent European schemes
In Ireland, from June 1995 those who scrapped their cars (with a minimum ageof ten years) and replaced them with a new-model vehicle could reclaim £ 1 000(US$ 1 600) of the registration tax on the new car. The scheme - initially
supposed to last until December 1996 - was extended to the end of 1997. In
1995, 1996 and 1997, respectively, 5 140, 19 400 and 35 000 vehicles were
scrapped - out of a fleet that had roughly 990 000 cars in 1995 and grew to
1 134 000 in 1997. The majority of the vehicles scrapped under the scheme
were 10-12 years old.
In Norway, a scrappage incentive was introduced in 1996. NKr 5 000(US$ 800) was given for scrapping a vehicle older than ten years. There was nocompulsory replacement for the scrapped car. A considerable part of scrappedcars were replaced with second-hand vehicles. The incentive caused an extra
150 000 vehicles to be scrapped (7% of the fleet) with respect to the ‘natural’annual scrapping rate.
Italy is the latest European country to introduce incentives for accelerated
vehicle retirement. From January 1997 the government awarded bonuses
ranging from L 1.5 million to L 2 million (roughly US$ 900-1 200) for eachvehicle scrapped, according to the size (engine displacement) of thereplacement car bought. The incentive was conditional on a new car beingbought and on car manufacturers/dealers further reducing the car’s price by anamount equal to the bonus. The programme expired in September 1997. It wasthen extended for 4 months with a fixed bonus of L 1.5 million for all car sizes.
In 1997, about 1 148 000 old cars (about 4% of the fleet) were retired under thescheme.
From February to September 1998 a second scheme was introduced. This time
an incentive of L 1.25 million or L 1.5 million was given, provided that the new
replacement model had an average fuel consumption (whether diesel orgasoline) between 7 and 9 litres per 100 km or less than 7 litres, respectively.
From October 1997, bonuses were also given if the new replacement models
purchased were fuelled with LPG, methane or electricity. In the case of electricvehicles, the scrappage incentive is L 3.5 million and there is no expiry date forthe scheme.
A year-long scrappage programme for motorcycles was also introduced by the
Italian government in 1998 and renewed in 1999; a programme for scrappingbuses has also begun. Further car-for-scrappage programs are currently being
studied by the Ministry of Transport.

14

1. THE EFFECTS OF SCRAPPING SCHEMES ON THE CAR
MARKET AND THE NATIONAL ECONOMY

1.1. New car sales
1.1.1. The main determinants of car demand
The demand for cars in any given time period is closely linked to thewealth of consumers. In more precise terms, it is linked to their available
current income (i.e. the demand has a high-income elasticity) and to the value ofall the financial and real assets inherited from the previous time period. The
borrowing rate also plays a very important role in determining car purchases
since most consumers have the opportunity to increase current available income
by borrowing money.
The demand for cars is related to price but the decision to purchase a car isslightly different from that related to non-durable goods. It is a discrete(one-off) purchase and the relatively high cost of cars creates ‘threshold effects’in aggregate car demand.
Since a car can last for many years, consumers will also have to decide
when to replace their existing vehicles, by selling (or scrapping) them andpurchasing others. They will postpone or anticipate their purchases according
to the expectations of their future incomes, future car prices and the expected
trends in other relevant variables.
All the links with current and future expected values of the economic
variables described, in addition to the ‘threshold effects’ caused by the discrete
nature of the related choice, make the demand for cars - as for most durable
goods - not just heavily dependent on the economic situation, but much morevolatile than economic growth (Deaton and Muellbauer, 1981).

15

The durable nature of cars introduces other differences with the demandfor other economic goods. First of all, the demand for vehicles at any time canbe split between new, or ‘incremental’ demand on the one hand andreplacement demand on the other. Incremental demand includes all the vehicles(whether new or second hand) that are incremental to the existing fleet and,
therefore, increases the overall fleet size. Replacement demand only accounts
for the substitution of those cars that, for both economic and technical reasons,are considered obsolescent by their owners. Scrappage schemes only target thelatter.2
Due to the fact that a vehicle lasts for several years, the decision topurchase it now will affect decisions taken by the owner in the future. For thisreason, the history of past first registrations and the age structure of the fleet inuse will contain important information concerning the possible future evolutionof car purchases. Hence, any analysis of car demand should preferably take a‘dynamic’ view covering some years, rather than a ‘static’ one considering only
a year.
Moreover, the durable nature of cars introduces a difference between thesimple purchase and ownership of a vehicle on the one hand and its usage on
the other hand. The relevant costs are different - for instance, the purchase priceof the car is different from the price of the fuel used to run it and the cost ofholding and maintaining a vehicle for a given period. But usage and purchasing
patterns interact and influence each other. For example, intense use of the car
will deteriorate it sooner and may induce an earlier purchase of a newer vehicle.
It is always difficult to explain, and even more difficult to predict, thechanges in car demand that result from a change in any of the variables justdescribed. Understanding the market is rendered more difficult by the fact thatthe car is not a homogeneous, single good. On the contrary, the market is rather
segmented according to the size of the car and its age. In particular, one canroughly outline two different kinds of car owners and purchasers.
Higher-income groups are more likely to replace their vehicles with new models
after anything from one to four years. They will sell their previous model on
the used-car market. These models will then ‘trickle down’ through thesecond-hand market, being utilised successively either by lower-income groups
or as a second or third car by the higher-income groups.3 The market for newmodels and the second-hand market, though different, are closely linked. New
and used cars are substitute goods, even if imperfect substitutes. Moreover, themarket value of a used car owned by a consumer is part of his or her wealth (itis a real asset), therefore, it may influence replacement demand. Prices on thesecond-hand market are the fundamental link between these two market
segments.
16

1.1.2.

The economic effects of a scrappage incentive

It is convenient, for the purposes of the following discussion, to introduce
a distinction between two main kinds of scrappage schemes. The first kindgives a reward for any scrapped car, whatever the subsequent replacement
decision taken by the consumer. For instance, the bonus is awarded even if a
replacement vehicle older than the scrapped one is purchased, or if no other cars
are bought to replace the scrapped one. The second kind of scheme gives abonus conditional upon a specific kind of replacement (typically, but notnecessarily, a new model car). Both schemes are directed at influencing the
replacement choices made by consumers. They do not target the choices of newcars, which are incremental to the actual fleet’s size. However, the first one
leaves the possibility for the consumer to choose other means of transport(public transport, motorcycles, bicycles, etc.), while the second one constrains
the consumer to replacing his or her old vehicle with another one, within agiven amount of time. Henceforth, the two groups of scrappage programmes
are referred to as cash-for-scrappage and cash-for-replacement schemes,
respectively. The term cash-for-replacement is used, when not otherwise
specified, to indicate a scheme that requires the purchase of a new replacement
vehicle - although, at least in theory, other kinds of replacements may betargeted by this programme (see example in section 3.3).
The first effect of a scrappage incentive is that of raising the value of thetargeted vehicles. This increases the value of the assets owned by the
consumers and ultimately raises their available incomes. According to thenature of the scrappage scheme, the increment in the available income may or
may not be spent on a replacement vehicle. If the purchase of a replacement
vehicle is not compulsory, the increase in the available income can be spent by
the consumer on any other goods or even saved. Due to the high value of thetransport services provided by cars, only a few owners choose not to replace
their old vehicles.
If on the other hand, the award of the bonus is conditional upon thepurchase of a replacement car, the effect of the scheme may be defined more asa ‘price effect’: it considerably lowers the cost of replacement.
In both cases, the introduction of a scrappage incentive will havesubstantial effects on the market, increasing sales while the scheme is working.
However, the characteristics of the cars sold under the two kinds of programmes
will be different. Moreover, the time pattern of the increase in sales is also
likely to be quite different.

17Cash-for-scrappage schemes
In the short run, the cash-for-scrappage schemes should mainly increase
the demand for second- hand vehicles. In practice incentives are given to theowners of older cars that are closer to the average retirement age. Thesevehicles are likely to be owned by lower-income groups or higher-income
families who keep them as a second or even third car. As argued above, thesegroups are more used to purchasing second-hand replacement vehicles rather
than new ones. There is only a minor, though significant, proportion of
consumers who usually replace a car older than ten years with a new one.
According to some evidence from the Danish, French and Italian markets, this
proportion is 10% of the annual replacements.
Some of the owners responding to the incentives given, will bring forward
their purchase with respect to what they would have done without the scrappage
programmes. This bringing forward implies that, after the scheme has expired,
there will be a reduction in purchases compared to what would have happened
without the scheme.

Figure 1. First registration trends in Denmark and Norway
180000First registrations

160000140000120000100000
80000
60000
40000
20000
0
1987

1988

1989

1990

1991

1992

1993

1994

DK first reg.

1995

1996

1997

NO first reg.

Source: ECMT elaboration on 1996 AAMA and ECMT data.

Figure 1 shows the effect of cash-for-scrappage schemes on firstregistrations in Denmark and Norway. The Danish scheme was introduced in
January 1994 and lasted until June 1995. The bonuses given in the first half of1995 were, however, much lower than those awarded the previous year and did
18not have any relevant effect. The graph shows a fall in cars sales, even if only
small, after the sharp increase in 1994. As concerns Norway, an incentive wasgiven during 1996. Although there was no fall in the subsequent year, theincrease in first registrations was very low, contrary to the trend of the past
three years. In both cases, the graph confirms that the anticipation effectlowered total car sales in the period after the scheme.
The effect should mainly concern the purchase of used cars. Of the Danish
owners who chose to scrap their cars, 45% bought a second-hand replacement
vehicle during the first six months of the scheme; only 11% of them purchased
a new model in the same period. The other 44% used another existing car in thehousehold, public means of transport or a bicycle (Transportrådet, 1995). There
are no precise data as regards the replacement cars bought in Norway during thescheme. However, it is known that the used cars imported in 1996 were morethan twice as many as those imported in the previous year (up from 7 000 to
19 000 (Transportøkonomisk Institutt, 1997).
However, the impact of cash-for-scrappage schemes may also indirectly
concern the part of the market that usually purchases new cars. The demand forused vehicles will increase due to the scheme. This is likely to involve an
increase in their market value. Some of the owners who are used to selling
relatively recent cars (which are not eligible for the incentive) in order to buy a
new model may decide to take advantage of the possible price increase and buy
a new one, even if they cannot benefit from the scrappage bonus. Moreover,since the vehicles bought as a result of cash-for-scrappage schemes are mainly
second-hand cars, they will have a shorter average remaining life as comparedto new models. Therefore, in the midterm, they will again have to be replaced.
This will give rise to another later ‘wave’ of replacement demands for secondhand cars, that ultimately will also increase the demand for new vehicles. Thisshould imply that the fall in sales of new model cars due to the anticipation
effect will probably have a rather limited impact and duration.
Cash-for-replacement schemes
The changes introduced by scrappage schemes will be greater when theschemes require the replacement of old cars with new models. Most of theconsumers who want to participate in the scheme will have to change theirhabits. Not only will they have to bring forward their purchasing decisions tobenefit from the opportunities offered, but they will also have to switch fromused cars to new models. As some of them can hardly afford the purchase of a
new car, they will probably have to choose cheaper models, relatively
small-sized cars. When the incentive is given as a fixed amount of money,
19

irrespective of the size of the car purchased, small models benefit most. The
discount given by the incentive represents a much higher percentage of their
total price.
Consumers may choose a model with a size/engine displacement smaller
than originally intended and/or they may bargain with the dealer to obtain afurther reduction in the price of the new model they would like to buy, so as toreduce the difference between the values of the two cars. New and used cars areafter all close substitutes: a fall in the price of one good also implies a fall in theother.
So, in the short run the increase in the demand for new models will be
partially at the expense of a decrease in the demand for used cars. This will
reduce the prices of all used vehicles that cannot get the scrapping incentive.4
Therefore, it will also reduce the value of the one- to four-year-old cars owned
by higher-income families. Their replacement decisions will also be affected.
They may postpone the replacement, hoping for a more favourable situation justafter the end of the scheme. Evidence from Italy shows that the demand forused cars starts increasing again after the programme - though the excess supplyof used cars will take some time to be cleared. Therefore, these owners might
wait for a future increase in the price of used cars.5 The value of a used car
decreases in time, so there is a cost in postponing its sale. Alternatively, they
may replace their vehicle during the scheme.
Strong advertising campaigns made during scrappage schemes by car
manufacturers and dealers and the general fall in new car prices may persuadeeven those owners not eligible for the scheme to choose the same period toreplace their vehicle.6 As a result of this, purchases of vehicles bought within
the scheme as well as some vehicles bought outside it, may be brought forward.
The anticipation effect may thus be even stronger than the one described above.
Figure 2 shows the first registration trends in France and Italy (left scale),
together with their GDP per capita (right scale). From the early 1980s until
1993, the two countries have a very similar pattern of both GDP per capita andfirst registrations. In both cases there was a sharp increase during the second
half of the 1980s. Then, in both countries the car market was heavily influenced
by the world recession of 1993. But after that, France (where an incentive wasgiven from February 1994 to September 1996) saw a sharp increase (from1.7 million in 1993 to almost 2 million vehicles in 1994), while Italy remainedin a deep crisis for three more years.7 While the GDP per capita of the twocountries was parallel during this period, their cars sales showed huge
differences. In 1997, after the end of the French schemes, there was a sharp fall20

in new car sales; this was in spite of a relatively good economic climate, which
can be attributed to the anticipation effect described above.8

Figure 2. First registration trends in Italy and France
25000

25000

20000

21000
19000

15000
17000
15000
10000
13000
11000

GDP per capita (US $ 1990)

First registrations (hundreds)

23000

5000

9000
0

19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97

7000

Italy first reg.

France first reg.

Italy GDP p.c.

France GDP p.c.

Source: ECMT and OECD data, 1998.

Contrary to France, Italy saw in 1997 the highest number of first registrations
ever recorded (2.4 million cars) following introduction of acash-for-replacement scheme. Data on orders9 placed with car dealers(Promotor, 10/1998) showed that Italy had a considerable increase in car sales
in the last months of 1996 even before the scheme was introduced. This meantthat the incentive reinforced an already existing increasing trend in sales.
Data related to Spanish car sales show a different trend due to significant
differences in the implementation of the Spanish costs for replacement schemes.
Up till now, no falls in the car sales have been recorded in the annual sales data.
Annual first registrations have steadily and rapidly increased since 1994, theyear when the scheme was first introduced. The Spanish scheme is still
operating and it has been made permanent. There was only a very short interval
without any incentive – a few months between the Renove II Plan and the
PREVER plan. In these months, Spanish car sales experienced a sharp fall,compared to the corresponding months in previous years and went back to 199321

levels, year of the economic slump. Secondly, in addition to the scrappage
incentive, in 1996 the government substantially reduced the car registration tax(from 12% to 7%), which gave a considerable incentive not only toreplacement, but also to incremental demand. Finally, the ratio of cars per
capita in Spain is significantly lower than in France or Italy (as shown in
Figure 10 and 11 of section 3). In other terms, the Spanish market still offers
more opportunities for an expansion in incremental demand. This suggests thatthe increase in Spanish GDP has raised ‘new’ demand more than in the othertwo countries - where the market is closer to saturation and replacement demandaccounts for most of the annual car sales. The increase in Spanish incremental
demand may have offset some decrease in the replacement demand due to any
anticipation effect resulting from the scrappage schemes.
To sum up, in the very short run, cash-for-replacement schemes of the kind
implemented in France and Italy increased the demand for new models much
more than cash-for-scrappage schemes introduced elsewhere. However, theincrease seems to be due mainly to bringing forward replacement decisions andmay lead to severe subsequent falls in new car sales - particularly in thosecountries where the size of the fleet is stable or increasing only very slowly.
When making longer term comparisons, the difference between
cash-for-scrappage and cash-for-replacement schemes, as regards the increasein new car sales, may be smaller.
1.2. Prices and industry profits
Cash-for-scrappage schemes increase the demand for second-handvehicles. This is likely to increase their prices. However, in an open economy,
the increase in demand may be met by the importation of cheap, used vehicles
from abroad. This will smooth the effect on prices, although it will attract
relatively ‘dirty’ vehicles into the region. No particular change has been
noticed in the new model prices with respect to the natural trend where theseschemes have been applied.
Cash-for-replacement schemes that require a new model car have acompletely different effect on prices. In typical OECD car market conditions,with no supply constraint and some excess production capacity they usually
provoke a considerable fall in the prices of new models and of all thesecond-hand cars that are more recent than the age requirement imposed. First,
car manufacturers and car dealers will lower the prices of bigger cars, trying tocompensate for the higher demand directed at smaller vehicles. Then, due tothe mechanisms explained above, there will be a decline in the prices of usedcars as well. This in turn will reduce new-model prices. Moreover, often the22introduction of the incentive opens a commercial war among the different car
manufacturers trying to gain or just maintain their market shares. Finally, justafter the scheme has expired, the anticipation effect will decrease the demand
for new models with a further negative effect on prices. Figure 3 shows the fallin prices following the introduction of the incentives in Italy in January 1997.10
The fall was about 3.5% in nominal terms - much more in real terms. The data
shown in the graph represent the index for all cars sold on the market and notjust those sold within the scheme (which are about 10% of the sample
considered to build the index). The fall will be more severe for bigger vehicles,
as their demand is likely to decrease in comparison with smaller cars.
Moreover, in real terms, the fall has shown itself to be permanent and notcompensated by later price increases.11 The fall in real prices of cars has to be
judged by taking into account the general decrease in world prices for this good.
Scrappage schemes, however, anticipated and strengthened the trend.

Figure 3. Price indices in Italy and the European Union (base 100 in 1995)
105
103

Prices indices

101
99
97
95
93
91
89

A

O

J9
8

J

A

J9
7

J

O

A

O

J9
6

J

A

J9
5

87

European Union Car Price index

European Union Consumer prices index

Italy Car Price index

Italy Consumer prices index

Source: CCFA, 1997.

The short-term growth in new car sales should, other things being equal,considerably boost the profits of the car industry. However, this potential
increase will be considerably reduced by three elements. First, the general pricedecrease just mentioned. Second, the shift of the new registrations towards
smaller cars (shown for instance by the Italian data in Table 1), on which both23

the industry and the car dealers have smaller profit margins. In addition to that,profits may be lowered further in the midterm by the anticipation effect. Part ofthe profit increase will not be a real increase, but rather a shift in time.
Table 1. First registrations in Italy by engine displacement (1996-1997)
1996

1997

Displacement(litres)
< 0.9

Cars

%

Cars

%

89 4795%

180 446

7%

0.9 - 1.3

626 30535%

984 37940%

1.3 - 1.5

245 87714%

339 275

14%

1.5 - 1.75

350 58820%

427 06717%

1.75 -2.0

364 07921%

425 86917%

2.0 - 2.5

81 112

4%91 7304%>2.5

16 9891%

19 731

1%

Total

1 774 429

100%

2 468 497

100%

Source: ECMT elaboration on 1998 ACI data.

Finally, past experience has shown that there may be a redistribution of themarket shares of the different firms in a given country. The car manufacturersthat have better small vehicles at the time of the incentive will obtain aconsiderable share of the total registrations. Therefore, not all the industries
will be able to take real advantage of the scheme.
Aside from a potential increase in profits, scrappage programmes haveother undeniable advantages for car manufacturers. The car industry has rather
high fixed costs and needs to produce a certain amount of vehicles to reach the
optimal scale of output. A period of low sales will probably accumulate large
inventories for both the manufacturers and car dealers. This will oblige them tolower selling prices and introduce privately funded, buy-back programmes forold cars in order to stimulate new purchases. If the state or some other external
subject12 pays for part of this price reduction, it will reduce considerably thecosts faced by the manufacturers. It may also help them to smooth the effect of
the economic downturns and to reach the optimal production scale (but the
anticipation effect may give a later additional cost).
24

All in all, it is difficult to assess the effect of scrappage schemes on the car
industry. Cash-for-scrappage schemes are likely to have positive though
limited effects on sales and profits, both in the short and midterm. The effects
of temporary cash-for-replacement schemes are beneficial in the very short term
(while the scheme is operating), but they have a cost in the mid to long run that,particularly for some firms (those that usually do not sell small-sized vehicles),may offset the short-term advantages.
1.3. The effects on the national economy
It is commonly held that in countries with a strong national car industry,
cash-for-replacement schemes may introduce some positive effects on GDP
growth and employment. Moreover, it is claimed that this kind of scheme
benefits public finance, since extra tax revenues (VAT, excise and registration
taxes) on new vehicles could be greater than the total cost of the scheme.
On the first point, there are not many data available to assess it. An
estimate made by the Central Bank of Italy (Banca d’Italia, 1998) suggested
that about 0.4% of 1997 GDP growth (out of a total increase of 1.5%) could be
attributed to the increase in car sales. 1996 to 1997 saw the sharpest increase in
first registrations experienced in the last 20 years. The number of cars
registered increased by about 40%, from 1.74 million to 2.47 million. But thiscannot be entirely attributed to the effect of the scrappage incentive. The
market, which had been stagnant for four consecutive years, was alreadyshowing some signs of recovery at the end of 1996. The orders placed with car
dealers were already increasing by that time. Part of the cars replaced under thescheme would have been replaced anyway, without any expenditure by thestate. Moreover, a longer-term analysis should be made for a more complete
evaluation, in order to forecast any possible future fall in the car market due tothe anticipation effect - there were signs of a considerable decrease in firstregistrations in January 1999. In conclusion, there are not sufficient data toproperly assess the effect on the GDP of the scheme. It was surely positive inthe short term but the longer term impact is highly uncertain.
As concerns the public finances, the view described above is over
simplistic. Three fundamental elements are not taken into account by
the simple difference between the cost of financing the incentive and the
VAT/registration tax revenues raised by it. First of all, some of thecars scrapped will unavoidably be vehicles that would have been scrapped andreplaced anyway in a rather short time. The cost of incentives for such
scrapping is a dead-weight loss for the state and the community. The taxes
paid on them would be paid anyway to the state, without any incentive.
25

They must, therefore, not be taken into account when computing the effect of
the scheme on public finances.
Moreover, the scheme increases car sales and the related taxes in the very
short run, but is likely to decrease them in the midterm. A corresponding
decrease in tax revenues should be expected, compared to the benchmark
alternative. Therefore, rather than an increase in tax revenues, the scheme ismore likely, once again, to cause an anticipation of them.
Finally, as the consumer’s budget is fixed, the increased purchase of cars is
likely to reduce the income available for other expenditures, in particular as
regards other durable goods. During 1997, for instance, Italian data showed afall in expenditures related to furniture, household maintenance andconstruction. VAT is also paid on these items. If the scheme brings about a fallin their consumption, the state will correspondingly have lower revenues from
them.
Therefore, it is rather incorrect, especially without in-depth quantitative
analyses, to claim that public finances will benefit from cash-for-replacement
schemes.

26

2. THE EFFECTS OF SCRAPPAGE PROGRAMMES ON THE
ENVIRONMENT

2.1. What are the main environmental impacts to be evaluated?
There are two main factors concerning fleet renewal that may havesignificant effects on the environment. The first is the change in atmosphericemissions due to the replacement of old vehicles with new ones. As newer
vehicles usually have much better performance than very old ones, from anenvironmental point of view, it is believed that speeding up fleet renewal bygetting rid of the ‘dirtiest’ model years can substantially curb atmosphericpollution.
The second factor is the accelerated transformation of natural resources(used to build new vehicles) into waste (the leftovers of old vehicle scrappage
processes) through car construction and dismantling. Accelerating the car
scrappage rate may have negative environmental effects as it increases all theimpacts related to the vehicle: production, scrapping, dismantling and therecycling processes.
While the first element mentioned can be considered as a ‘variable’
external cost, in that its dimension increases proportionally with the activity
level (the mileage travelled) of the vehicle considered, the second one has to bedeemed as a ‘fixed’ external cost, as it relates to processes made once and for all
for any car.
Where the external costs produced by a vehicle through its whole life-cycle
have to be estimated, the variable share of total costs will increase as the car's
life increases. On the other hand, considering external costs per v-km travelled,
it is clear that the share of fixed external costs will be higher the shorter the
car’s life.
For these reasons, the two aspects mentioned are likely to pull theenvironmental evaluation of scrappage schemes in opposite directions. On the
one hand, shortening the life of older vehicles will have a positive effect,27

because it may reduce the variable external costs they produce. On the other
hand, it will have a negative long-term effect, since it increases the number of
production and dismantling processes involved in the car fleet’s renewal; or put
in other terms, it will increase the fixed external costs per v-km.
For temporary, ‘one-shot’ schemes, the fixed environmental costs of car
construction and dismantling can be considered as a ‘sunk cost’. Once the car isbuilt, there is no way to reduce the environmental costs due to the
manufacturing processes. Even if the impact due to car scrapping anddismantling could be brought forward or postponed, but not avoided, it would
be generated anyway. So they should not be accounted for in the environmental
analysis. But this is no longer true for permanent scrappage programmes or for
scrappage schemes that are repeated more than once. This is why, for thegeneral assessment of scrappage schemes, it is important to understand therelative magnitude of the damage involved by these two environmental aspects.
Previous studies have suggested that the external environmental costs dueto the ‘upstream’ and ‘downstream’ parts of the car's life-cycle (i.e. car
construction and dismantling) are considerably lower compared to those of car
usage. Teufel, et al. (1993) indicate that about 30% of a car’s total lifetime
energy requirement is due to its production and end-of-life phases. The
remaining 70% is due to usage. This shows that the analysis should focus moreon the car usage phase.
However, the energy requirement is not a completely satisfactory indicatorof environmental impact. For instance, the same amount of gasoline consumed
can bring about a different impact if it is used within a densely populated, urban
area or in the middle of the countryside. Table 2 shows some results from theExternE Transport Research Project on the external costs of transport(Bickel et al., 1997).

28

Table 2. Estimated external costs from car usage
Fuel used

Gasoline

Vehicle model year
(technicalcharacteristics)
EURO-2 engine

Damage from use(trips between cities)(ECU/1000 v-km)
7.60

Gasoline

1990s with TWC

10.19

Gasoline

1980s with TWC

17.63

Gasoline

1980s non-catalysed

43.22

Diesel1990s-diesel

24.37

Diesel1980s-diesel

30.24

Source: Bickel et al., 1997.

The external costs reported in the third column were evaluated in terms ofthe consumers’ willingness to pay, related to the given physical damage tohuman health or the environment. The physical damage has been evaluatedaccording to a bottom-up, impact-pathway methodology. In other words, ittakes into account the trip's location, the atmospheric dispersion pattern of thepollutants emitted and the spatial distribution of subjects exposed to pollution.
These figures do not include the effects of car accidents on human health nor
the external costs of noise pollution. Moreover, the results illustrated refer to atrip between two German cities (Stuttgart and Mannheim). Trips made inside atown have shown considerably higher damage.13 The third column can,therefore, be considered as a conservative representation of external costs of car
usage.
The same study estimates the external costs due to the upstream anddownstream process, based on a literature review made by Bickel et al. (1997).
Assuming that a car lasts about 10.6 years and runs 150 000 km in all, an
average cost of 6.6 ECU/1 000 v-km was estimated due to the construction,
dismantling, scrapping and recycling phases. Taking a car lifetime of sevenyears (the lower age limit used in the French and Spanish schemes), with
100 000 km run during this time, the average cost per km rises to about
10 ECU/1 000 v-km.

29

All these results are subject to substantial degrees of uncertainty, yet theyclearly suggest that for older model cars (from the eighties and earlier models)the upstream and downstream impacts are substantially lower, compared to car
usage (6.6 against more than 40 ECU/1 000 v-km). However, this is no longer
true for the most recent models that have considerably reduced emissions. The
damage per v-km caused by a Euro-2 engine over the car’s lifetime is of thesame order of magnitude as the damage arising from its construction anddismantling phases. It must be remembered that the estimates of external costs
given in Table 2 are rather conservative and average external costs from car
usage may be higher than indicated, in particular when considering those trips
made within densely populated urban areas. But as other studies haveconfirmed, (see, for example, ECMT, 1998), the order of magnitude of theestimate is unlikely to show major variations.
This means that the assessment of actual scrappage schemes, aimed atgetting get rid of old, ‘dirty’ model cars, should focus more on the usage phasethan on the other processes of a car’s life-cycle. The same conclusion may nolonger be valid if applied to a hypothetical scrappage scheme implemented
some ten or fifteen years hence that tries to get rid of cars with Euro-2 engines.
The increasing amount of recycling of various vehicle parts, which ishelped by the improved ecological design of newer models, is likely to decrease
the upstream and downstream damage as well, so that the actual balance
between the ‘fixed external costs’ and the ‘variable external costs’ might bere-established. On the other hand, recycling processes are energy consuming
and produce some amounts of pollution and are definitely not without costs inenvironmental terms. This means that it will not be possible to reduce fixedenvironmental costs beyond a certain level.
To sum up, temporary, ‘one-shot’ schemes may have positive effects on
the variable share of the environmental costs and no relevant effects on the
fixed share of these. No definite conclusion on the environmental effects can be
drawn at the moment as concerns permanent scrappage schemes, as it is too
difficult to forecast technological evolution and its consequences for theenvironment. The present available data14 suggest that in the near future apermanent scheme may even have negative environmental effects. Any actual
proposal to implement such a programme should be carefully and thoroughly
evaluated, taking into account both kinds of external cost and making, wheneverpossible, quantitative estimates. There might even be good grounds, in the
future, to encourage longer car lives instead of scrapping earlier, for example toreduce demand for raw materials under possible sustainable development
strategies.

30

The present publication focuses on the environmental impact produced
during car operation (i.e. exhaust gas emissions), since it aims to evaluate
current experience of scrapping old vehicles.
2.2. The estimate of the change in atmospheric emissions
2.2.1. The mechanism of scrappage programmes
The main idea behind scrappage programmes is relatively simple. Somestudies15 have shown that the distribution of fleet emissions is rather skewed. A
small proportion of the fleet produces a considerable share of the fleet’s total
emissions, particularly as regards CO and HC (as shown in Table 3).
Old-model vehicles emit much more atmospheric pollutants per km run than
new cars. Most of the ‘dirtiest’ vehicles are very old cars.
Based on these considerations, the conclusion seems to be straightforward.
If it is possible through an incentive programme to remove the small group of‘gross emitters’ and replace them with more recent, cleaner vehicles, then aconsiderable reduction in atmospheric pollution will be achieved at a relatively
limited cost, since the incentive will have to apply only to the relatively small
number of ‘gross emitters’. Though contrary to the ‘polluter pays’ principle,
this may also represent a feasible way to reduce environmental costs. Via thestate, the community (damaged by atmospheric pollution) pays the owners of‘dirty’ vehicles to replace them with cleaner ones, thereby reducing theemissions.
The implementation of this simple idea is in reality far more complicatedthan this short description would suggest. First, as will be discussed in section
2.3.1, there is not a simple linkage between the vehicle's age and its average
emission factor. Emissions vary greatly even among vehicles of the samemodel year (Hall, 1995). Second, the total emissions produced in a given time
period depend on several variables. The scrappage programmes are directed at
modifying a limited number of them in a precise way. These variables interact
among themselves and are also linked to other factors affecting the owner's
behaviour and, through this, overall fleet emissions. This direct and indirectinteraction will influence the effectiveness and cost-effectiveness of thescrapping programme implemented and might produce a result which is far
from that expected.

31

Table 3. Distribution of HC and CO emissions in the car fleet of the USA
Fleet’s decile
10th
9th
8th
7th
6th
5th
4th
3rd
2nd
1st

HC emissions(% of total)
44.2%
15.2%
10.7%
8.2%
6.6%
5.3%
3.9%
2.8%
1.9%
1.1%

CO emissions(% of total)
31.7
19.5
14.4
10.6
7.8
5.7
4.2
2.9
2.0
1.1

Source: Glazer et al., 1995.

2.2.2. Main variables determining the fleet’s emissions
The total emissions of any atmospheric pollutant are likely to increase with
the number of vehicles belonging to the fleet, i.e. the fleet’s size.16 Besides that,the amount of polluting emissions will be positively correlated with the average
number of vehicle miles travelled (VMT) per year, which in turn depends on amultitude of economic and social factors affecting transport demand and supply.
The third fundamental variable is the average emission factor of the car
fleet, i.e. the average quantity of any given atmospheric pollutant emitted ceterisparibus (for any given, well-defined driving pattern) per km travelled. In strict
technical terms, it is not particularly meaningful to indicate an average emission
factor for the whole fleet. Some fundamental distinctions should be introduced
as concerns the type of fuel used, the age cohort considered and the particulartechnology (e.g., catalysed or non-catalysed vehicles). Nevertheless, a
representative average emission factor for the whole fleet will be maintained inmost of the following discussion, because in many cases it can make theexposition clearer, without relevant loss of accuracy. More detailed comments
will be introduced when relevant.
Finally, any calculation of road transport emissions has to consider thedriving pattern of the vehicles considered, as this significantly affects theaverage emission rate of any vehicle.17 The average quantity of any pollutant
emitted per km may show huge variations according to the driving speed, theextent of stop-and-go driving, idling times and the number of cold starts made.
32

While variables such as the fleet’s size and the average VMT clearly show apositive correlation with total fleet emissions for any pollutant considered,different driving patterns may have different effects according to the particularpollutant analysed. No short, synthetic description of the relationship between
the average vehicle speed (used to represent the driving pattern) and theemission factor is likely to be sufficiently accurate. One important, generalpoint must be mentioned. Congestion is more likely to happen in urban areas.
In urban areas, an increase in congestion usually implies a lower average speed,
more stop-and-go driving and an increase in the emission rate for most
atmospheric pollutants, apart from NOx (ECMT, 1998c). Thus, on average,
atmospheric emission rates for most pollutants considered are higher undertypical urban driving patterns than under other conditions.
The implementation of any programme to accelerate vehicle retirement
may have direct or indirect effects on all the four variables mentioned. All
these possible effects should be evaluated. However, as the following
paragraphs will show, mainly two of them, the emission rate and the average
mileage travelled, are critical for the overall assessment.
2.2.3. Estimating the size of the reduction achieved
The amount of pollution produced by a single vehicle during a given time
period, say one year, depends on its average Emission Rate (ER), in grams ofeach pollutant emitted per km run, driving patterns and the VMT during theyear. Scrapping an old vehicle before its ‘natural’ retirement age implies
avoiding the emissions it would have caused during its expected remaining life,
had it not been scrapped in advance. If there are statistical (average car's life ina given fleet) or technical reasons to suppose that the old vehicle scrapped
would have lasted L more years, then the total amount of emissions avoided canbe simply represented as:18

Emissions avoided by scrapping an old vehicle = ERold ⋅ VMTold ⋅ Lold
where the subscript ‘old’ indicates that an aged model car has been scrapped.
On the other hand, the owners of a scrapped vehicle will have to replace insome way the amount of mileage travelled with the old car. Whatever the
replacement vehicle they use, it will again produce some emissions at someaverage rate for a certain amount of mileage during all the years L considered
above. Hence, the reduction in atmospheric emissions achieved through thescrappage will not be as large as suggested. The emissions produced by the
replacement vehicle will have to be subtracted from the amount previously
33indicated as ‘emissions avoided’. Thus, the net reduction in emissions achievedby scrapping an old vehicle will be as indicated below:

Net emissions avoided by scrapping an old vehicle = (ERold ⋅VMTold − ERrepl ⋅VMTrepl ) ⋅ L
where the subscript ‘repl’ indicates the average emission rate and mileage
travelled per year of the replacement vehicle chosen by the consumer. This
assumes driver behaviour and driving patterns are not altered by the change ofcar. It is worth underlining that, unless the design of the scheme introduces
particular requirements for the replacement vehicle, there are no reasons toassume that it will be more recent than the scrapped one. Moreover, it can also
be a different means of transport. It will not necessarily be another car.
Finally, if a scrappage programme manages to get rid of a number N of oldcars and replaces them with the same number of more recent vehicles, theoverall amount of emission reduction achieved can be represented
approximately by:

Net emissions avoided by scrapping Ν old vehicles = (ERold ⋅VMTold − ERrepl ⋅VMTrepl ) ⋅ L⋅ Ν
ERold, VMTold, ERrepl and VMTrepl will in this case be the average characteristicsof the populations considered and will no longer represent the performances of asingle vehicle.
The representation given above is a slightly simplified version of theformulas given by some American guidelines that indicate how to compute theemission reduction achieved through the scheme (see, e.g. California
EPA-ARB, 1998).
Thus, to make a scrappage programme more effective from theenvironmental point of view, i.e. to increase the emission reductions of thepollutants concerned, decision-makers may act on four alternative variables.
First, they can try to make the difference between the average emission
rate of the vehicles scrapped and the average emission rate of the replacement
vehicle as large as possible. They have to ensure that the vehicle scrapped isproperly selected among the ‘gross emitters’ and that the replacement vehicle isreasonably clean.
Second, they should select vehicles for scrapping that have a significant
remaining life L. It must be remembered that all vehicles scrapped with an
incentive would be scrapped anyway in a few years time, even without any

34intervention. If the vehicle purchased by the scheme was already very close to
retirement, some money would be spent on a reduction in emissions that was
negligible or even null. This will result in a dead-weight loss for the economy,
whatever the body financing the scheme.
Decision-makers may also act on the VMT, trying to ensure that thevehicle scrapped was habitually run on a certain minimum amount of km per
year. It would not be beneficial to pay for scrapping a vehicle that (although notnecessarily close to retirement) was little used. Besides, where the replacement
results in a reduction in the amount of pollutants emitted per km, the larger theamount of km driven per year by the owner, the bigger will be the total
emission reduction achieved.
Finally, the remaining option to obtain a large reduction in the emissions
considered is that of replacing a large number N of cars (always trying to selectproperly the scrapped and the new vehicles).
The way in which these mentioned variables are influenced isfundamentally determined by the design of the scheme.
2.3. The design of the scheme and effects on the relevant variables
2.3.1. Average emission factors
There are two main routes to increasing the difference between the average
emission rates of scrapped and replacement vehicles. The first tries to pick up
and eliminate the ‘dirtiest’, older vehicles. In practical terms, this has been
done mainly through age constraints imposed on the eligibility of vehicles andthrough the use of inspection programmes to test emission rates. The secondroute focuses more on the replacement vehicles and tries to ensure that they arechosen among the ‘cleanest’ available models. The most common requirement
introduced for this purpose has been the constraint of purchasing a new model
to replace the scrapped one. One could also design schemes so that the bonus
offered is differentiated according to the environmental performance of thevehicle purchased. For example vehicles meeting more stringent emissions
regulations to be introduced at a planned future date could make the purchaser
eligible for greater cash payments.
It is unlikely that scrappage programmes can act simultaneously on bothroutes in practice. In most cases, owners of old, high-emitting vehicles are very
different from the potential purchasers of new-model cars. They have different

35socio-economic characteristics, different incomes, habits and behaviour. It isvery difficult, for instance, to persuade the owner of a car - older than 15 years who is used to purchasing rather cheap, second-hand vehicles to suddenly buy a
new model. Schemes that try to achieve this particular replacement will either
attract a very limited number of scrapped cars or they will have to give very
high monetary incentives to persuade households to change their habits.
Almost none of the programmes implemented has followed this path. The
Hungarian scheme may be considered as the only exception (see Box 2 andsection 3.1). It selects old, two-stroke-engine models and requires theirreplacement with new, clean vehicles. The scheme has scrapped a rather
limited number of vehicles to date.
All programmes implemented in the USA, plus those of Canada, Denmarkand Norway have chosen the first approach. They have imposed requirementson the selection of the retired vehicles rather than on the new vehicles. All theother European schemes, apart from the Hungarian one, have chosen the second
approach.
‘Local’ pollutants
Separate consideration of the pollutants previously indicated as ‘local’(PM, NOx, SOx, HC, CO) and the greenhouse gases (CO2) may make thediscussion about emission factors clearer.
As concerns the first group, there has undoubtedly been considerable
technological progress in the last decades, which, together with thestrengthening of environmental regulations, has led to substantial reductions inaverage emissions for most pollutants. Within the European Union (EU), thecurrent regulation in force sets standards for CO, HC and NOx emissions at
one-tenth the level of the first limits introduced by Directives 70/220/EEC and77/102/EEC. Further reductions have just been approved by the European
Council (98/69/EC) and will enter into force within a few years. Similar
considerations apply to the emission of particulate matter from diesel vehicles.
The current limit is about 2.7 times lower than the one previously established in
1988. Further reductions will be required in 2001 and 2006.
The EU standards apply to new vehicles introduced into the market. They
cannot be considered as representative of the average emission factors for thevehicles that are already in use. As a vehicle ages, its emission rates are likely
to worsen with respect to original performance. This will happen to any vehicle
and a fortiori in those cases where there is no proper regular maintenance.
Therefore, a car belonging to an old cohort is likely to show higher emission
36

patterns with respect to new models, not only because of the different
regulations in force at the time of the vehicle’s construction, but also because of
its poorer condition.
These are the two main reasons why a vehicle’s age is usually taken as aproxy for its average emissions characteristics and why it is commonly believedthat lowering the age of the car fleet will lead to a substantial decrease inemissions for most pollutants. The scant evidence available suggests that, in
addition to the main points raised above, there are some important caveats to beunderlined.
First of all, other behavioural parameters may have a major influence onemission patterns. The overall distance covered by the vehicle during its
lifetime (which is only approximately correlated with its age) and the type andfrequency of maintenance will heavily influence a car's environmental
performance due to the effects of ‘wear and tear’. The kind of fuel used andother technological characteristics (e.g. presence of catalytic devices and theirmaintenance conditions) will also affect the quality and quantity of thepollutants emitted by each cohort. Old diesel vehicles will presumably haverelatively high emissions of particulate matter, which may be negligible forgasoline cars from the same model year. The reverse is true for lead emissions.
In addition, the fleet's ageing is unlikely to have the same effect on theemissions of all pollutants considered. For instance, CO emission rates show ahigher correlation with car age than NO2 - the latter depending essentially on
combustion temperature, which is not so closely linked to the engine conditions.
Ceteris paribus, engine displacement will also affect the quantity ofpollutants emitted. Engines with a higher displacement are likely to show
higher fuel consumption and higher emission rates, compared to smaller
vehicles of the same age cohort.
Data collected by the Illinois ‘cash for clunkers’ programme (based on asample of about 150 vehicles) showed that the link between emissions and age
is far from straightforward (see Figure 4). This suggests that using only the age
indicator might not allow a scrappage programme to gather and retire the real
‘gross emitters’.
Similar problems may even arise with the replacement cars. When thevehicle retirement scheme does not require the purchase of new model cars, it isusually assumed that the replacement vehicle is an ‘average’ model,
representative of the fleet in use. The average emission rates of the fleet in use
are probably lower than those of the older, scrapped vehicles. But some37

replacement vehicles might be ‘gross emitters’ themselves, if no other selection
criterion is adopted by the programme (or by regulations in force) to avoid it. A
survey made during the implementation of the Danish scheme, where no
particular requirement was introduced for the substitution vehicle, showed thatabout 19% of the replacement cars purchased were older than ten years. These
kinds of problems are avoided in cash-for-replacement schemes imposing thepurchase of new model cars. It is very unlikely that a new model turns out to bea ‘gross emitter’ in its first three or four years of life; the period usuallyconsidered for the assessment of the scheme. However, cash-for-replacement
schemes may bring about different complications, as will be explained in
section 2.3.3.

Figure 4. Average emission rate (g/mile) by model year of the scrapped car,as measured by the Illinois EPA’s pilot programme of 1992
16

Average emission rate (g/mile)

14
12
10
8
6
4
2
0
1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

Model year

HC

NOx

Source: Illinois EPA, May 1993.

‘Global’ pollutants
As regards CO2 emissions, the European historical trend for average fuelconsumption (to which CO2 emissions are strictly linked) shows that replacing
old vehicles with newer ones does not always guarantee a reduction in averagevehicle emissions, unless both the scrapped and the replacement vehicles arecarefully selected among the most and the least fuel-intensive cars.

38

The thick line in Figure 5 shows a sharp decrease in average fuelconsumption during the early eighties; with a minimum in average consumption
reached in 1986-1987. After that, there is an evident increase that lasts until
1993. Then fuel consumption starts declining again, although rather slowly. A
new vehicle purchased in 1993 was on average less fuel efficient than a newmodel purchased seven years before. Some national trends are even more
pronounced. The Italian curve shows that a new model purchased in 1995 on
average consumed more than new models sold during the twelve preceding
years. In such a case, a scrappage programme that replaces a car older than ten
years with a new one may lead to an increase in CO2 emissions.
In the cash-for-replacement schemes implemented in France, Ireland, Italy
and Spain data also show that most of the cars bought had a small engine
displacement, suggesting that the replacement vehicles had consumption below
the average. However, it is also important to note that this was not because
decision-makers deliberately chose to favour smaller engines. In some cases the
opposite was true. The last French scheme (Prime qualité automobile) and thefirst Italian scheme gave a higher incentive for purchasing larger cars.
No definite conclusions on the effect of the French, Greek, Irish, Italianand Spanish schemes can be drawn from the data shown in Figure 5. Moredetailed analysis of the engine-displacement and fuel-consumption
characteristics of the scrapped and replacement cars is required. Estimates ofthe fuel consumption characteristics for the cars that would have been sold had
the scheme not been implemented are also required. It is even more difficult tojudge ex-ante the effect on greenhouse gases emissions of the cash-forscrappage schemes, where the replacement car was probably an ‘average’,representative model taken from the fleet in use at the time of the scheme.

39Figure 5. Weighted Average Fuel Consumption and CO2 Emissions, All New Cars
CO2 Emissions
Test cycle - 93/116/EC(Grams CO2 / km)

Fuel Consumption
Test cycle - 80/1268/EEC(Litres / 100 km)
225

9Germ any

200

Austria
Belgium
France
Italy

7

175

UK
Sw edenAverage

6
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95

40

8

Note:
Source:150

Weighted average for 7 countries (1995-187g/km; 1996-185g/km; 1997-183g/km).
ACEA/OICA, 1999.

1995

1996

1997

Nevertheless, at least one important element may be added to theassessment. The graph reveals that in Western Europe care has to be taken to
design scrappage schemes in ways that ensure they do not result in an increase
in total fleet CO2 emissions.19
2.3.2. Vehicle Mileage Travelled (VMT)
Section 2.2.3 showed that a scheme would be more successful if it
managed to scrap a substantial amount of mileage run by ‘gross emitters’. To
do this, the body that organises the scrappage programme should try to ensurethat the scrapped vehicles were used as a principal means of transport and not
kept for marginal use only. Scrappage schemes are less effective if replacement
vehicles are driven more intensively than retired vehicles and this also has to betaken into account.
Although scrapping programmes are not directly targeted at changing theoverall fleet's VMT, it is often believed that they may have an effect on it. It is
known that the average mileage travelled per car changes according to the ageof the vehicle. Newer cars run considerably more km per year than the older
cohorts, as suggested from data in Table 4. More uncertain and dependent on
the country analysed, is the estimate of how much more new vehicles travelcompared with old ones. Data from the USA seem to suggest that the ratio
between the average distance travelled by a new passenger car and one ten years
or older is around 2.20 Some European data (Transportrådets, 1995) suggest aslightly lower ratio, but still of the same order of magnitude (about 1.7). Basedon this evidence for VMT, it might be expected that the substitution of old cars
with newer ones will substantially increase overall VMT per year, for all those
years when scrapped vehicles would still have been in use had the scheme notbeen implemented.

41

Table 4. Average annual miles per automobile
by automobile age in USA (1990)
Vehicle age

Miles

Under 1 year

19 8001 year

16 9002 years

16 3003 years

14 4004 years

13 8005 years

12 6006 years

12 9007 years

12 4008 years

12 3009 years

11 20010 years and older

9 300

Source: Transportation Energy Data Book, 1997.

These are, however, only statistical descriptions and do not suggest any
explanation as to the causal linkages between car age and average VMT. Socialand economic factors, rather than the characteristics of newer model vehicles,
are mainly responsible for increases in road transport demand. Thus an increasein transport demand may tend to induce more purchases of both new and usedmodel cars (both as incremental and as replacement demand). Households may
select either newer, more expensive vehicles or cheaper second-hand ones,
according to their income and transport demand. For instance, frequent
travellers will tend to buy newer models, as they are usually more comfortable,safer and may also be more fuel-efficient. On the other hand, the bettercharacteristics of newer models may also cause an increase in the average
mileage travelled per car, since the owners may feel safer, spend less on fueland find travelling more enjoyable. If this second causal link has any realeffect, lowering the age of the car fleet might bring about an increase in total
mileage travelled with respect to what would happen without any scrappage
programme. This in turn would negatively affect the emission reduction
achieved by the programme.

42

There are not sufficient data to evaluate the effect of lowering the fleet’s
age on total VMT. For those scrappage schemes that do not require theconsumer to buy a new model when replacing the old car, there is now acommon agreement on maintaining the hypothesis of a constant overall VMTbefore and after the implementation. Some surveys - based on questionnaires
from the owners of cars just replaced under some USA pilot programmes(UNOCAL’s SCRAP, Illinois and Delaware programmes) and under the Danish
programme confirm the validity of this hypothesis.21
It is uncertain whether the same hypothesis is true for cash-for-replacement
programmes. In some cases, the newest models made available at rather cheap
prices include some options - air conditioning, air bags, hi-fi - that were once
costly and rare. In these cases, the improvement in the vehicle characteristics
might have some significant effects on the VMT of replacement vehicles.
Moreover, the improved reliability (e.g. winter starts) of new cars may have asignificant impact on frequency of use and length of average journey. No
surveys have been made to obtain information on any possible change in the
average VMT where these schemes have been implemented. Nor is there
definite empirical evidence suggesting that an improvement in variables such as
comfort and safety will increase passenger transport demand.
The case is slightly different for improvements in fuel efficiency. As formost demand curves related to ‘normal’ goods, empirical evidence shows that a
reduction in (travel) costs leads to an increase in consumption, i.e. the mileage
travelled and vice versa. The data shown in Figure 5 suggest that new models
may even be driven less than old ones depending of course on change in theprice of fuel at the pump.
In conclusion, there are no grounds to exclude the possibility that thescrapping schemes that require replacement with a new model vehicle will leadto an increase in the overall VMT. An increase in total VMT due to the scheme
is possible but the points discussed above suggest that if there is any increase, itwill be rather limited in size.
2.3.3. Interactions among the criteria imposed for selection of vehicles
Aside from the direct effects of scrappage schemes just outlined, there may
be important indirect interactions among the different criteria imposed that
affect the final result. They will mainly concern emission rates and average
VMT.

43

To ensure that only vehicles with a high emission rate are retired, only old
cars are made eligible for the schemes. The age requirements of the schemes
implemented in America and Europe vary from 7 up to 15 and more years
minimum age. The market value of old, used cars belonging to the age cohorts
selected will be increased. The scrapping incentive effectively puts a lower
bound on the market value of old vehicles eligible for the scheme. They will
not be sold on the used-car market for an amount of money below the bonus.
Moreover, if the scheme is large enough, there will also be a shortage in thelocal supply of this kind of vehicle. On the other hand, there will always be alower-income group of consumers that demands these cheap, old models. As aconsequence, there will be either imports of old vehicles from otherregions/countries or a price increase for the model years concerned. In the firstcase, the scheme will not lower the age of the fleet as much as expected. In thelatter case, some worse-off households, who were just about to replace theircars, will have to either direct their purchasing decisions at even older models or
keep the current car for some more years. This effect may increase theremaining life of some older, ‘dirtier’ models with respect to what would have
happened without the scheme. This may also mean that the total scrappedamount of VMT will be partly replaced using vehicles older than those retired.
In both cases, the environmental achievements of the programme will beworse than expected. In an attempt to avoid this effect (to prevent supply
shortages of old, second-hand vehicles and major price changes in this sectionof the market), some studies suggest that the schemes should retire only alimited number of old vehicles. Moyer et al. (1995) estimate that the optimalrate of scrapping is some 2 000 vehicles per year per million vehicles in the
population.
Further conditions on the replacement vehicles, made to ensure that they
have on average lower emission rates, may also have negative effects on othervariables. As mentioned in section 1.1.2, schemes that constrain owners tobuying a new-model car are likely to select relatively better-off households andwill exclude all those families that cannot afford such expenditure during theperiod of the scheme.22 Some better-off households may scrap vehicles thatwere kept for marginal use (e.g., as a second or third car), running on an annual
VMT below the average. This will reduce the amount of ‘dirty’ mileage
travelled.
Moreover, vehicles owned by higher-income owners are more likely to berelatively well maintained. This means that their average emission rates will
not be as high as expected. On the other hand, by excluding the poorest
individuals, it is likely that the scheme will not manage to scrap a large

44

proportion of the real ‘gross emitters’ (i.e. very old cars used as a principalmeans of transport).
The scant available evidence seems to confirm this. In the Irish scheme, alower age limit of ten years was imposed and award of the incentive wasconditional upon the purchase of a new model. Of the scrapped vehicles, 50%
were 10-12 years old and only 10% of them were older than 16 years.
However, this might also reflect the fact that this particular age cohort isrelatively bigger. Therefore, to make these data more meaningful, they have to
be compared with the total number of vehicles in use in each age cohort. The
ratio of scrapped vehicles older than 16 years, compared to the total number ofvehicles in use of the same age was rather low. Only 17% of them were retired
during the scheme. But even this number, although meaningful, cannot proveanything if it is not compared to the ‘usual’ average scrappage rate for this age
cohort.
The data available for Italy are more complete and show more clearly
which vehicle age cohorts took most advantage of the scheme. The cash-forreplacement programme, introduced in Italy in January 1997, increased the
proportion of retirements across all age cohorts. The overall scrappage rate,i.e. the percentage of retirements over the total number of vehicles in use wasalmost doubled, compared to the average rate of the four preceding years(characterised by a very low car demand). It rose from 3.7% to 6.6%. Yet, thesuccess of the programme was much higher for relatively recent vehicles thatwere closer to the lower-age limit imposed (ten years). Figure 6 compares theaverage scrappage rates by age cohort23 (for the four years before the scheme)with the corresponding rates resulting from the first scheme, run in 1997. For
vehicles aged 10-13 years, the scrappage rate in 1997 was about 2.3 times(130%) higher, compared to the average of the previous years, while for cars
older than 15 years, the ratio decreased to approximately 1.7 (only 70% higher).
It is interesting to note that the scrappage rate of vehicles older than 15 years(16.3%) was very close to the Irish one.
Sometimes, the official scrappage data can be approximate, since theowners may get rid of their cars without declaring it. However, the ratio
between scrappage rates of different years, on which the previous analysis was
based, should not be particularly influenced by this problem.

45

Figure 6. Comparison of Italian scrappage rates before and during thescheme2.50

ratio

scrappage rates

20.0%

2.00

1997

15.0%

1.50

10.0%

1.00

average 94-96
5.0%

0.50

0.0%

ratio scrappage rates
1997/average scrappage rates

25.0%

0.00
over 15

15

14

13

12

11

10

age cohorts
average rate of 1994-96

rate of 1997

ratio 1997/average

Source: ECMT elaboration on 1998 ACI data.

2.3.4. Other variables affecting the fleet’s emissions
Size of the fleet
Because of the freedom in choosing the replacement means of transport,
cash-for-scrappage programmes might have the effect of decreasing the size ofthe fleet and will surely decrease its growth rate, as the Danish and Norwegiancases showed (Figure 7). This is, however, only a temporary effect and is due
more to the delaying of replacement purchases than to a permanent decision not
to replace the scrapped car. In both countries mentioned, the fleet started
increasing again a few months after the end of the scrapping programme,
apparently without any permanent effect from the short-term reduction.
Since the effect of cash-for-replacement schemes is that of considerably
lowering the average price of both new and second-hand vehicles, this mightcause an increase in the fleet’s growth rate with respect to the growth rate thatwould have taken place without the incentive. In other words, the pricedecrease could stimulate not only replacement demand, but also incremental
demand for new vehicles. The decision to buy an incremental vehicle is not
only based on its market price. A household will buy a new car only if it has a46

transport demand that justifies the purchase. Therefore, this effect should be
relatively less important in those countries (like Italy and France) where
replacement purchases prevail in annual first registrations (where ‘incremental’
demand is already low).24

Figure 7. The effect of the Danish (1994-95) and Norwegian (1996) schemeson the fleet’s size
1900

DK

Passenger cars (thousands)

1800

1700

NOR
1600

1500

Danish scheme

1400

Norwegian scheme

1300

1200
1987

1988

1989

1990

1991

1992

cars in use - Denmark

1993

1994

1995

1996

cars in use - Norway

Source: Eurostat Database TRAINS, quoted in LAT-DTU-INFRAS.

The effect of scrappage schemes on congestion and driving patterns
No direct effects can be caused by any kind of scrapping incentive on the
average driving patterns. Some indirect effects may result, however, frominduced changes in both the size of the fleet and the average VMT.
If a scrappage scheme brings about an increase in VMT, this may
negatively affect congestion. However, as there is no clear evidence of the link
between old vehicles’ replacement and the change in VMT, it does not help theanalyst to try and figure out any other more indirect and uncertain links between
VMT, congestion and the average emission rate.

47

A decrease/increase in congestion might also be expected if the fleet size
decreases/increases due to the scheme. As regards the fleet size, the possible
decrease caused by cash-for-scrappage schemes can be considered as atemporary, short-term and not particularly relevant effect. So no remarkableeffects on congestion can be expected due to this kind of scheme.
Where cash-for-replacement schemes may accelerate the increase in the
fleet’s size (through the price decrease they cause) they may also accelerate theincrease in congestion. Though plausible in theory, even this is quite an indirect
effect which is very difficult to analyse and quantify. The empirical evidence isquite controversial. More studies are needed to evaluate the price effect on car
demand due to cash-for-replacement schemes.
Moreover, the decrease/increase in congestion is not only linked to thenumber of newly registered and de-registered vehicles, but also to the particularlocation where this happens. The effect will be more visible if the netincrease/decrease in registrations is concentrated in urban areas; something thatwill not necessarily happen.
2.3.5. Possible longer-term effects
The schemes described have always been assessed in the short term. The
emission reduction achieved has usually been measured covering a period of
about three years from the introduction of the scheme. All the evaluations
reviewed (some of them are briefly described in sections 2.4.3. and 2.6.2.) claimthat there are no effects of the scheme beyond this period. After three years, thefleet renewal introduced through the incentive would have been reachedanyway. But the fact that there will not be positive effects on the environment
after three years, does not exclude the possibility of having other effects in themidterm.
The first chapter showed how cash-for-replacement schemes will bringforward some replacement decisions and will result in a fall in new car sales
during the subsequent period. The year after the end of the scheme, theanticipation effect will probably cause a slowing down of fleet renewal withrespect to the ‘natural’ renewal rate. Suppose now that during this year a new,particularly clean model is introduced onto the market. The result may be thatits sales will be less than what would have happened without the incentive.
Some of the owners that have anticipated their purchases, because of thescheme, will now be driving vehicles with worse performances. They will keepon driving these vehicles, instead of cleaner ones, for several years, as cars aremeant to last.

48

Figure 8. The Italian fleet by age cohort (1992 and 1997)
3000000

number of cars

2500000

2000000

1500000

1000000

500000

13

14

ye
ar
s
ye
ar
12
s
ye
ar
11
s
ye
ar
10
s
ye
ar
s
9
ye
ar
s
8
ye
ar
s
7
ye
ar
s
6
ye
ar
s
5
ye
ar
s
4
ye
ar
s
3
ye
ar
s
2
ye
ar
s
ne 1 y
w ea
m r
od
el
s

0

age cohortcars in use (1992)

cars in use (1997)

Source: ACI data, 1998.

Figure 8 shows the age distribution of the Italian fleet in 1992 and 1997.
During 1997, there was a relative ‘peak’ in vehicles aged five years, due to thevery high number of sales in 1992. Therefore, after the positive, short-term
effect of the programme, there might be a negative environmental effect in the
mid to long run.
The introduction of new, cleaner technologies is not just continuous andsmooth over time. The next few years will see the introduction of cleaner
vehicles, due to EU directives, and the introduction of more fuel efficient cars
under agreements at European and national levels. For instance, cleaner andsafer motorcycles should be sold from June 1999, due to Directive 97/24/EC;
stricter EU emission standards will be introduced for new cars from the year
2001 (Directive 98/69/EC). These dates have to be kept in mind whenevaluating past schemes and especially when proposing new schemes.

492.4. The cost-effectiveness of scrappage schemes
2.4.1. What is the cost of the scheme?
Cash-for-replacement schemes that require the purchase of a new car haveoften been judged according to their effect on public finances. However, thecosts of any public intervention have to be evaluated first from the point ofview of the citizens/consumers, rather than from that of the public finances. In
simple terms, if public expenditure increases, it means that citizens have to pay
more taxes to keep the same balance between public expenditure and tax
revenues. From this perspective, all money spent on the incentive represents a
cost to citizens. Moreover, any amount spent by the state has an opportunity
cost, as shown in the social benefits that could have been produced byalternative ways of spending the same amount, whether in the transport sector
or elsewhere. This opportunity cost may be even higher than the direct cost of
the expenditure. Therefore, all the public resources devoted to scrappage
schemes, (incentives and the related administrative costs), have to be accounted
for as a cost of implementing the measure.
In some cases, car manufacturers and car dealers have also made an
economic contribution to the implementation of the schemes, lowering theirprices to attract higher numbers of purchasers. Section 1 of this report showedthat these price reductions were not only voluntary but partly caused by theinteraction of other economic variables affected by the scheme. Pricereductions indubitably represent a cost to manufacturers and dealers and madean important contribution to the implementation of the schemes. However,discuounts should not be counted as a cost from a public perspective, contrary
to the case of the state incentives just discussed. The losses to producers anddealers from price reductions represent net gains to consumers. Net because
they were not financed through taxes. The combination of these changes
represents a ‘pecuniary effect’, i.e. simply a redistribution of resources without
net changes in the total welfare and should not be considered in a social
cost-benefit framework.
2.4.2.

The cost per tonne of atmospheric pollutant avoided: generalstatements

In most of the real cases examined, the incentive was given as a fixedamount of money per scrapped vehicle. Only in a few cases was a distinction
made according to the size (in Italy, France) or the age (in British Columbia,
California) of the replacement car purchased.25

50

Apart from the direct cost of financing the incentives given to car owners,
any scheme faces some administrative costs stemming from all the practicaldetails related to it, e.g., control of the eligibility of the car offered for
scrapping, distribution refunds to car manufacturers, data collection on the
scrapped and replacement vehicles, etc. This cost is roughly proportional to thenumber of cars scrapped and is far from negligible. The available USA and
Canadian reports estimated this cost to be in the range of US$ 50-100 per car.
For some schemes, this cost included inspection and emission testing made to
identify the vehicles eligible for bonuses and in some cases the costs ofcontrolling ex-post emission rates for the vehicles retired.
Europeanprogrammes did not undertake these tests.
The overall cost of the scheme may be reasonably represented as being
proportional to the number of vehicles retired:

Total Cost of the scheme = C ⋅ N
where C is the average cost per vehicle and N is the number of vehicles
scrapped. The average cost per tonne of pollutant reduced will be given by:
Average Cost per tonne of emission avoided =C⋅N( ERold ⋅ VMTold − ERrepl ⋅ VMTrepl ) ⋅ L ⋅ Ν
From this equation, it is possible to sketch out some first conclusions of thecost-effectiveness of different kinds of scrappage programmes.
First, it is known that cash-for-replacement schemes need a higher
incentive (higher C in the formula shown above) to attract owners, compared to
cash-for-scrappage schemes. Thus, they will need to achieve a larger reductionin emissions to be as cost effective as the latter. Consequently, it is extremely
important that these schemes manage to select the real ‘gross emitters’,
i.e. vehicles with high emission rates that are used as a principal means oftransport in a family. The data and the explanations given above suggest that
this is unlikely to happen. As already mentioned in section 2.3, one cannot rely
just on the age of the scrapped vehicles to draw conclusions about theirenvironmental performances. The fact that cash-for-replacement schemes haveattracted mostly 10-13 year-old vehicles (shown in section 2.3.3), while theAmerican programmes have selected older vehicles, may also be partiallyjustified by the earlier introduction of catalytic devices in the USA and
Canadian fleets. In other words, while in the USA it is necessary to select amodel from the 1970s in order to retire a non-catalysed car, in Europe this can51

be done by imposing a lower, minimum age requirement, retiring models fromthe 1980s. Yet the American schemes, unlike the European cash-forreplacement ones, selected a limited number of old cars using both age
requirements and past I&M data. They were designed to attract vehicles used asa principal car (with high annual VMT) by lower-income families. The
selection made by European cash-for-replacement schemes was far lessaccurate. These programmes focused more on attracting a large quantity ofvehicles, rather than emphasising vehicle quality.
Furthermore, suppose the analysts know exactly the emission rates and
VMT of all vehicles belonging to the fleet. They can rank all cars according to
the quantity of emissions avoided by scrapping them and buying a given
replacement vehicle. Initially, there will be a group of very old, ‘dirty’ cars
intensively used by their owners; then a group of slightly more recent and/or
less-used vehicles that give a relatively lower, avoided emission and so on, up
to vehicles whose retirement would minimally affect emission reduction. If thedecision-makers want to reach a certain overall reduction level, they might startby giving incentives for scrappage of the first group described and then continue
with the other groups, increasing the total number of vehicles retired (i.e. thesize of the scrappage scheme) until they meet the required reduction target. If
the cost per vehicle scrapped is fixed and does not vary according to thequantity of pollution reduced, then the marginal and average costs per tonne ofpollution reduced will increase as the total quantity of pollution avoided
increases. For greater emissions reductions, incentives will have to be given to
more and more vehicles, going beyond the limited number of ‘gross emitters’.
Owners of relatively more recent and better-maintained vehicles will probably
need a higher bonus to be persuaded to scrap their cars.26 The marginal cost per
tonne reduced will, therefore, have an increasing shape, like the one shown in
Figure 9. Cash-for-scrappage schemes directed at the retirement of a limited,well-selected number of ‘gross emitters’ will be represented by a point in theleft part of the curve, with a low cost per tonne of pollution avoided. Larger
schemes may avoid a greater amount of total emissions, but at a progressively
increasing cost.
Hence, large-scale cash-for-replacement schemes implemented in Europe
are more probably placed on the right, upper part of the curve shown in
Figure 9.

52

Figure 9. Marginal cost of the schemes per tonne of emission reduced

As the scheme approaches higher marginal and average costs, it will
become increasingly probable that alternative policies (enhancement ofinspection and maintenance programmes; retrofitting of older, non-catalysed
vehicles, etc) could be more efficiently implemented.
2.4.3. Some evidence from past experiences
Up to the present, there have been only a few attempts to quantify the cost
per tonne reduced of any pollutant. All of them have been made in the USA
and Canada. Moreover, all of them concerned cash-for-scrappage programmes.
The evaluations have been made on schemes with quite different designs andthey used different hypotheses. Therefore, they are not easily comparable. An
examination of the available reports gives a few useful suggestions.
In most cases, the cost per tonne reduced was measured by dividing theoverall cost of the programme by the estimated reduction of each pollutant
considered - HC, CO and NOx - as if the scheme had been implemented toachieve only that reduction.
The evidence from the Illinois (1992),

53

UNOCAL (1990) and Scrap-It (1997) programmes suggested that the average
unit cost was around US$ 3 500 (1997) per tonne of HC reduced; about US$
600 per tonne of CO reduced; and about US$ 21 000 for any tonne of reducedNOx emissions. These figures are uncertain and cannot be directly extrapolated
to other scrappage programmes. However, they at least give an idea of theorder of magnitude of the costs involved.
Moreover, they show the specific pollutants that these policies will moreeasily reduce. For instance, it is more difficult and costly to reduce NOx
emissions through accelerated vehicle renewal (as already suggested in
section 2.3.1). However, it may efficiently target reductions in carbon
monoxide emissions.
The Scrap-It programme run in British Columbia (Canada) evaluatedseparately the average cost per tonne reduced using two hypotheses: the casewhere the replacement vehicle was an average car taken from the existing fleet;
and the case where it was a new-model car. The scheme gave two different
incentives, about US$ 370 and US$ 550 (1997) respectively. For both the HC
and CO the cost-effectiveness ratio was worse in the case of new-model
purchases. It did not show relevant changes as regards NOx.
Finally, one of the available studies (US Congress, OTA, 1992) also
introduced a comparison with some alternative policies to reduce HC and NOx
emissions both in the transport sector and in other economic activities(stationary sources). The main alternative considered within the transport sector
was an enhancement of the Inspection and Maintenance (I&M) programmes.
The conclusion was that, as regards HC and CO, the cost per tonne of reduction
achieved by well-designed scrappage schemes was of the same order ofmagnitude as that of that of I&M measures when vehicles older than 15 years
are retired. The comparison was relatively less favourable when the scrappedvehicles were more recent.
Almost no empirical estimates are available for the cash-for-replacement
programmes. All the elements discussed in this report and the scarce, available
data lead to the conclusion that they are far less cost-effective as compared to
cash-for scrappage programmes. Accordingly, the limited evidence collectedsuggests that they are less cost-effective than I&M enhancement policies.
2.5. What are the main policy tools alternative to scrappage schemes?
In all cases, the possibility of implementing scrappage schemes must be
checked against feasible alternative policy tools that may achieve the same goal54

with the aim of implementing the most cost-effective and efficient measures.
Unfortunately, apart from the examples mentioned above, none of the reports
analysed, introduced any detailed comparison with other principal policy tools
to reduce atmospheric emissions from mobile sources. This section will only
discuss the main alternatives to scrappage schemes. Further quantitative
analysis is needed to draw more meaningful conclusions from the comparison
among these alternatives. Moreover, the section will only address thosemeasures aimed at improving the environmental quality of the means oftransport (the car fleet) and will not consider the huge existing variety of traffic
control management measures.
The ultimate mechanism through which scrappage schemes achieve theirresults is a change in the relative prices of all different available cars. As
explained in section 2.7.1, they put (temporarily or permanently, according to
the design of the programme) a lower bound on the value of old vehicles
eligible for the scheme. In so doing, they increase the relative value of thesevehicles with respect to all newer ones and, therefore, render the replacements
cheaper. However, this change in relative prices may also be achieved inseveral different ways.
A similar change in relative prices was successfully obtained in Germany
by reforming the annual vehicle taxation in July 1997. The changes introducedby the German government granted tax credits for passenger cars complying
with Euro-3 and Euro-4 engine standards and simultaneously increased the tax
paid by non-catalysed vehicles. This has considerably accelerated the vehicle
replacement rate and favoured the introduction of cleaner vehicles. Anotherexample is the Hungarian government’s introduction of policy measures overthe last these six years (section 3.1). In this case, the tax burden on older
vehicles was not increased in absolute terms, but taxes were considerably
reduced for cleaner vehicles, thereby encouraging the purchasing of ‘greener’cars and the replacements of old, ‘dirty’ vehicles.
The enhancement of existing Inspection and Maintenance (I&M)
programmes may also cause economic and environmental effects similar to
those of scrappage incentives.
If the regulation introduces stricter
environmental and safety standards for all cars and the I&M programmes
manage to enforce them, there will be an increase in the average cost faced byowners to keep a vehicle in ‘fair’ working condition. This is likely to increase
the costs of keeping an old vehicle with respect to newer ones. Once again, theset of relative prices for old and newer cars will be changed, favouring
replacement purchases and shifting the car demand towards newer models.
Some empirical evidence from the Spanish experience (Licandro andSampayo, 1997) confirms that changes in the I&M programmes may have55

considerable effects on the trend in first registrations. Consequently, this policy
might also have favourable effects on the car manufacturers and, through them,on the whole economy.
From the environmental point of view, another valid alternative toscrappage schemes may be given by retrofitting programmes. These can either
be mandatory or implemented through economic incentives (subsidies, tax
credits, etc.). Mandatory programmes will act through a mechanism similar tothe one just described for I&M enhancements. They will raise the cost ofholding old, non-catalysed vehicles. Voluntary, incentive-driven, retrofit
programmes will involve different changes. In general, the cost of retrofitting avehicle is considerably lower than the cost of replacing it with a cleaner, more
recent one. This lower cost might enable the public authority that funds these to
obtain emission reductions with lower expenditures, (compared to thoseincurred by scrappage programmes), with a more favourable cost-effectivenessratio. Otherwise, with the same expenditure, it could manage to persuade amuch higher number of lower-income owners of ‘gross emitters’ to undertakethe programme, thereby achieving greater environmental benefits.
Alternatively, the environmental benefits of retrofitting old cars, whose engines
are in rather bad condition, may have very limited duration. After a shortperiod, they may return to the old environmental characteristics or they may
need some more costly repairs. This suggests that the two measures - scrappage
schemes and retrofitting programmes - should target two different categories ofvehicles. The former should be directed at older cars in relatively poor
condition, that could not run for many km with well-working retrofitting
devices. Retrofitting could be more efficiently directed at relatively recent
vehicles with better maintenance conditions. This simply suggests that when adurable good does not work as desired (environmental performance included),
there are two solutions: scrapping and replacing it or fixing it. The relative
efficiency of each alternative depends on its initial condition.
Finally, retrofitting does not lead to any improvement in the safetycharacteristics of the vehicles; undoubtedly a valuable result of scrappage
schemes, although it was not possible for this report to evaluate.
Incentives for retrofitting passenger cars have been given in Germany,
since 1985 and Hungary (see section 3.1). Some Swedish and British cities(Stockholm, Gothenburg, Malmo, London) have also recently implemented
retrofitting programmes for trucks and urban buses, respectively. Theseexperiences have had relatively good results. Further studies, however, areneeded to establish what their cost-effectiveness and cost-benefit ratios are,compared to scrappage schemes.

562.6. The benefits of reducing atmospheric emissions
2.6.1.

Some general statements

In order to make a cost-benefit assessment of the emission reductions
achieved by the programme, it is necessary to undertake a monetary evaluationof the damage brought about by private transport’s pollution of the atmosphere.
This requires an evaluation of goods, like human health and environmental
assets, that do not have a market value. These estimates are particularlycomplex and the results are subject to a high degree of uncertainty.
Nevertheless, the few attempts that interdisciplinary teams haveundertaken during this decade to define the size of these external costs27 havemade considerable practical contributions to the assessment of scrappage
schemes and the formulation of some policy advice. There are, in particular,
two main conclusions reached by the recent literature that should be underlined
for the purpose of assessing scrappage programmes.
Firstly, the external damage caused by private transport in cars is highlysite specific. It varies according to the particular location of a trip. The damage
is much higher when the car's trip is located within densely populated, urban
areas - human health being the most valuable good damaged by pollution.
Aside from population density, the damage is higher when there areunfavourable meteorological conditions (for instance, a lower mixing layer,
lower wind speed, frequency temperature inversions).
Therefore, the cost-benefit ratio of any scrappage scheme will be morefavourable when it manages to retire ‘dirty’ vehicles that are mostly used withindensely populated, metropolitan areas. The USA’s CAAAs of 1990 (see Box 1)targeted emissions in ozone and CO non-attainment areas (essentiallymetropolitan areas).
The work done by the European Commission (1995) and the Bickel et al.
(1997) study also suggested that ceteris paribus, the damage caused by a tonneof a given pollutant emitted from passenger cars (and any other road transport
vehicle) is substantially higher than the corresponding damage caused by thesame quantity emitted from a high-stack stationary source, especially whendensely populated areas are considered. This is mainly due to the different
natures of the atmospheric dispersion processes. Pollutants emitted fromtailpipes remain concentrated in a relatively smaller area than those emitted
from chimneys which spread and dilute over a radius of a few hundred kms. If
the same small area where pollutants are spread has a high population density,57

the differences between the externalities caused by the two sources will beconsiderable.
This implies that it may be incorrect to compare the cost-effectiveness ofpolicies that reduce the emissions from transport with other measures that
reduce the emissions from some industrial stationary sources. For instance,
eliminating one tonne of CO emissions from cars travelling in an urban area
may be better than eliminating the same quantity of CO emitted from a
200 metres-high stack placed in the same site, even if the latter option is lesscostly. If this conclusion is valid, the practice of trading mobile emission
reduction credits with stationary sources’ emission credits (as applied in theUSA) on a one-to-one basis, may not be economically efficient.
All in all, the information available on the damage caused by atmosphericpollutants suggests that scrappage schemes may be much more beneficial when
they manage to retire ‘dirty’ cars that are used mostly in densely populated,urban areas. These are the sites where scrappage schemes are more likely toremain a valuable policy option in reducing environmental pollution.
Conversely, the damage caused by vehicles used only in rural, scarcely
populated areas is rather small. Hence, the cost-benefit ratio for scrapping themis probably unfavourable.
2.6.2.

Some evidence from past experiences

Unfortunately, there is very little information available on the cost-benefit
ratios of previous scrappage schemes, since virtually nobody has used thesecriteria to assess them.
The only ex-post cost-benefit analysis carried out to date was run to assess
the Norwegian cash-for-scrappage experience. The Norwegian scheme,
implemented across the whole country throughout 1996, gave a bonus of
NKr 5 000 (about US$ 880, 1997) to any owner scrapping a car older than ten
years. It did not impose any requirements on the replacement vehicle. An
estimated number of 150 000 cars were scrapped, net of the number of vehicles
that would have been retired anyway (without any incentive). An unsatisfactoryratio of benefits over costs of about 0.5 was estimated byTransportøkonomisk Institutt (1997) for this scheme.
The Hahn (1995) study runs an interesting evaluation, trying to generalisethrough econometric estimates the evidence of a pilot scrappage project
implemented in the Delaware area (where 125 old cars were retired). The study
estimated first what the number of cars retired would be in response to different

58

sizes of incentive - in other words, the ‘scrappage supply’. Then, it quantified
the amount of HC and NOx reductions corresponding to the different numbersof vehicles scrapped, based on the hypothesis that the retired vehicles would be
replaced by an ‘average’ car belonging to the fleet in use (with average
emission rates). Finally, it assessed the net benefit of different scenarios:
respectively, with US$ 250, US$ 500, US$ 750 and US$ 1 000 scrappage
bonuses and different corresponding numbers of scrapped cars. The costbenefit comparison was made under four different hypotheses concerning themonetary value of the avoided emissions. In particular, benefits werealternatively evaluated according to the four, estimated values given in Table 5.

Table 5. Alternative values of benefits of reducing emissions used by Hahn
(1995)

NOx
HC
*

*

(B)

Willingness to
pay estimates
($/t)
(C)

SCAQMD’s
estimated avoided
cost ($/t)
(D)

2 750
3 050

5 050
2 860

8 500
30 000Market valueof credits ($/t)

EPA’s estimatedavoided cost ($/t)

(A)

100
75

South Coast Air Quality Management District, California.

According to the results of this study, scrappage schemes of a limited size
(about 20 000 cars), with a relatively low incentive (US$ 250) will have apositive impact under almost all alternative benefit evaluations (only theevaluation made according to hypothesis (A) gives negative net benefits). Withlarger bonuses the net benefits of schemes become negative. Schemes do notpass the cost-benefit test with a bonus of US$ 500 (which corresponded to a
scrapping supply of some 200 000 cars) using benefit values as in (A), (B) and(C). Large-scale schemes with relatively high incentives maintain a positive net
benefit only if the external cost of pollution is very highly valued (when values
from hypothesis (D) are used). Total net benefits are maximised with bonusesof about US$ 1 480 under scenario D and a corresponding scrappage supply ofroughly one million vehicles.
This again confirms two main conclusions. Firstly, the small-scale
programmes are much more efficient than large-scale ones. Secondly,
scrappage programmes become relatively more beneficial in ‘sensitive areas’
where the damage due to atmospheric pollution is higher. The study, however,59

did not take into account the fact that an increase in the value of older vehicles(caused by the scrappage incentive) may have postponed some replacement
decisions of lower-income families and, therefore, actually have caused some‘gross emitters’ to live longer.
2.7. Some lessons from the schemes implemented in the past: the selection
criteria
Several different selection criteria have been implemented and/or proposedin the past to ensure that the scrappage programmes achieved the desired
objectives. They have been directed both at selecting the scrapping and thereplacement vehicles. As for vehicles to be retired, selection is required mainly
to ensure that they have high average emission rates and that they would havebeen used for a significant number of km during their remaining lifetime.
Criteria for the replacement cars concern only their environmental performance.
Clearly, any further constraint imposed on the eligibility of vehicles for
scrapping has the effect of reducing the potential number of vehicles in thescheme. If the selection works properly, on the other hand, it also has the effectof improving the cost-effectiveness of the policy.
2.7.1.

Selecting vehicles to be scrapped

Size of the bonus
The amount of money given to car owners as an incentive to scrap theirvehicles is the fundamental way to select the quality and quantity of the vehicles
sent to the scrap yard. Owners of old vehicles usually face three alternatives.
Either they keep their cars, undertaking the necessary maintenance to ensurethat they are kept in fair working condition; they try to sell them on thesecond-hand market; or they send them to the scrap yard. Among the last twoalternatives, they will choose the one that gives them the best value. In bothcases, they will have to satisfy their transport demands with alternative transportmeans at a given cost.
The simplest economic explanation of the owners’ decisions related toscrappage is that they will choose to retire the car if the value of the vehicles ‘inworking condition’ (V) net of the repair costs necessary to keep them in thiscondition (RC) is lower than the value they would get from the scrap operator(SV). The owners, therefore, will scrap their cars if:60V - RC < SV.
A scrappage incentive artificially raises the scrappage value (SV) of thevehicles and through this it increases the number of retirements made in a given
period, bringing forward decisions that would have been taken later on, whenthe value of the car is lowered due to ageing.
A low incentive will attract only older, badly maintained vehicles with alower market value (V) and high expected repair costs. Thus, on the one hand it
may have a positive effect on the scheme, since it will attract vehicles that are
expected to have high average emission rates. On the other hand, the vehicles
attracted by a low bonus are likely to be close to their ‘natural’ retirement with ashort remaining life. Therefore, paying for their retirement could be adead-weight loss for the economy. Moreover, a low bonus will hardly persuade
low-income owners of ‘gross emitters’ to replace these with cleaner vehicles, as
this involves considerable expenditure. As the size of the bonus increases, more
vehicles with higher market values and lower expected repair costs will be
attracted by the scheme. This, as explained, will increase the total amount ofemission reduction, but will also attract vehicles with relatively goodenvironmental performances. Thus, it will lower the cost-effectiveness of thescrappage programme. Therefore, the bonus given should be matched withother eligibility requirements that limit the total number of scrapping processes
and select the ‘dirtier’ vehicles.
The size of the bonus given for cash-for-replacement schemes varies fromabout US$ 500 up to US$ 1 600 (1997); the most common value is around
US$ 800. This corresponds to something between one-tenth and one-fifteenthof the average value of a new model. The bonus given for cash-for-scrappage
programmes is usually considerably lower, between US$ 300 and US$ 700.
Age requirements
The age criterion has been used in almost all the schemes implemented up
to the present. Only vehicles older than a given age are accepted for the
programme. The lowest minimum age required, seven and eight years, wasused, respectively, by the Spanish Renove II scheme and the second French
scheme, Prime qualité automobile. In both cases, very few cars aged between
seven and nine years entered the programme. The highest age requirements
have been implemented in the USA.
The risk of scrapping very old, rare cars has brought complaints from carcollectors’ associations, in particular in the USA. To avoid irreversibly61destroying old, valuable cars, the Californian EPA-ARP (1998) report proposedthat a list of vehicles eligible for scrappage be provided for the public before thecars are dismantled, so that collectors can buy them from the original owners.
Vehicles bought by collectors are not eligible for the bonus.
As explained above, the age requirements alone are not sufficient to ensurethat the ‘dirtiest’ and more intensively used vehicles are retired. Other criteria
have often been used as well.
Selection through Inspection and Maintenance (I&M) programmes
Most of the American schemes have selected the vehicles throughinspection and maintenance programmes, testing their average emission rates
and selecting the worst-performing ones. It has been argued that this kind of
selection may have the effect of encouraging some owners to tamper with theirvehicles, artificially raising their emission rates in order to get the scrappage
bonus or to even to bribe test operators. Although this kind of cheating may
worsen the results of the schemes, this problem should not be overstated. The
size of the bonus will always exclude the owners of relatively cleaner,
better-maintained vehicles. Since the market value of their cars is probably
much higher than the incentive, they will not have any interest in cheating.
Moreover, if the inspection is properly done, cheating will become moredifficult. Certainly the scrappage of some vehicles that perform much better
than the average of their cohort cannot be avoided. However, this defect alone
is unlikely to change substantially the results achieved.
Some programmes, like the Canadian Scrap-It scheme, have also used
results from I&M, made in the one or two years preceding the implementationof the scheme, as a selection criterion. When this option is available, it avoids
the problem of cheating. On the other hand, an inspection made one or two
years earlier cannot give much information on the actual condition of thevehicles, so it may not work as wished.
In a few cases the I&M programmes have also been used to ensure that theretired vehicles had a significant remaining lifetime and were usually run on agiven number of km. Under the Illinois ‘cash for clunkers’ pilot project, thejudgement on the expected remaining life was made by a group of mechanicalexperts. The Canadian Scrap-It programme used odometer readings to selectvehicles that had been run a given amount of km in the past years. In thesecases, cheating may represent a more serious problem. However, there are noalternative ways to avoid this kind of free riding. Any scrappage scheme will62

unavoidably attract a number of vehicles that would have been scrappedanyway.
Insurance and registration requirements
Usually, it is required that the vehicle proposed for scrappage be registeredregularly and insured for a given period, prior to the scheme. This is to prevent
vehicles that are no longer in use or already de-registered getting the incentive.
Most of the American schemes have also required that the vehicle be driven to
the scrap yard.
The type of registration (e.g., for commercial use rather than ‘private’ useonly) may also be used to select vehicles with higher average VMT.
Finally, the location of the vehicle's registration has also been used as aselective criterion. This has been done with two different goals. The first is to
avoid importing old, polluting cars from other regions or countries in order toobtain the incentive. The second is an attempt to ensure that the scrapped cars
were mainly used within a given targeted area, e.g., in metropolitan areas where
the emissions are more damaging or in non-attainment areas where a given
emission reduction target must be achieved.
Technological requirements
Some schemes have specified the technology of the vehicles eligible forthe incentives. The Hungarian programme has been directed at retiring only theold two-stroke engines still in use (Trabant, Wartburg and Barkas models).
Some European car manufacturers and car dealers are proposing to retire
non-catalysed cars, irrespective of their age.
Other technological requirements may be imposed according to the kind ofpollutant targeted. Scrappage of a limited number of old, ‘dirtier’, diesel
vehicles may be implemented if reductions of particulate matter are targeted.
A way to ensure that the scrapped vehicles have driven a considerable
number of km per year, is by targeting HGVs and buses. These vehicles havean average VMT, which is about twice as much as the average passenger car.
But, the average expenditure that is necessary to replace one of these vehicles isalso higher, so a higher bonus would be required to persuade the owners toundertake such a scheme. The cost-effectiveness ratios that would result fromschemes to reduce the main pollutants is uncertain. Moreover, the feasibility

63and efficiency of these schemes should be assessed by keeping in mind that theowners of these vehicles are not households but firms. They may have different
purchasing powers and their transport decisions might be influenced by othervariables. Further studies are, therefore, needed to evaluate this possibility
more in depth.
Parts sales and re-use
The proposed regulation on accelerated vehicle retirement in California(California EPA-ARB, 1998) prohibits the resale and re-use of all parts of thosecars retired to generate mobile, source-emission reduction credits. This
presumably was established to avoid prolonging the average life of old, ‘dirty’
vehicles - by the supply of spare parts coming from retired cars - not attracted to
the voluntary scrappage scheme. The ultimate purpose was, therefore, toaccelerate the scrappage and replacement of old vehicles even if they did notjoin the programme. As stated in section 2.1, such an acceleration of thereplacement process may lead to two different effects. On the one hand, it may
increase the number of cars scrapped, dismantled and recycled and enhance theconstruction of new cars during a given period; hence, increase the related
environmental ‘fixed’ costs. On the other hand, it may accelerate the retirementof some ‘gross emitters’,28 thereby avoiding the corresponding emissions. It isdifficult to establish if the overall net environmental effect is positive or
negative.
2.7.2.

Selecting replacement vehicles

Age requirements
In most of the European schemes it is required that the replacement vehicle
be a new-model car. The Canadian Scrap-It scheme allowed, among otheroptions, the purchase of second-hand vehicles, provided that the year of theirfirst registration was not earlier than 1988 (i.e. vehicles no more than eight
years old).
All the other schemes implemented did not place significant constraints on
the age of the replacement vehicles. They just assumed that the scrapped cars
would be replaced by ‘average’ vehicles in the fleet. Hungary imposed a ban on
the importation of cars older than four years. However, this was done
independently of the scrappage scheme. It influenced its results, but cannot be
considered as part of it.

64

Other requirements
Technological requirements have been the most common criteria used to
select replacement vehicles.
The purchase of replacement vehicles in Greece has been limited tocatalysed cars only. The second Italian scheme (implemented in the first sevenmonths of 1998) awarded the incentive to new vehicles according to their fuelconsumption, which had to be below 9 litres per 100 km (including both
diesel- and gasoline- fuelled cars). Another fuel-related scheme has been
implemented in Italy, giving the incentive to replacement vehicles that use
methane, LPG or electricity. Its success has been quite limited, up to thepresent, partly because of the lack of infrastructure (fuel stations) providing
methane and electricity.
Specific models (SEAT Marbella, Suzuki Swift, Opel Corsa, Renault andVolkswagen Polo) have been selected as the only eligible replacement vehicles
in the programme run in Budapest from 1993. The models were selected by acommittee according to certain engine characteristics, the existence of catalytic
devices and the price and credit conditions made available by the dealers.
Incentives to use public transport
The programme run in Budapest and the Canadian Scrap-It scheme offered
as an alternative scrappage incentive a free pass on the public transport network.
In this case, the owners of the scrapped vehicles were encouraged to use publicmeans of transport as a replacement for their vehicles. This kind of incentive
clearly tries to influence the modal split within urban areas.
The programme run in Budapest was not particularly successful. The
owners of two-stroke engines were offered free passes for themselves andmembers of their families, (up to a maximum of four persons). The value of anannual free pass was about Ft 30 000. On paper, therefore, the value of the
incentive was of the same order of magnitude as the alternative award of
Ft 100 000 (given if they bought a new model). However, in practice the option
was not so attractive. Many of the owners of these cars were retired people andany person over 65 years could get an annual free transit pass on public
transport in Budapest. Other owners were younger and would have enjoyedsome real advantages from a free pass. But they could not rely just on public
transport, so they preferred keeping their unique old vehicle instead ofscrapping it.

65

In contrast, the Canadian experience was positive. Among the threealternative incentives proposed (C$ 500 for a used, replacement car, C$ 700 for
a new model, or a one-year free transit pass on the local public transport) thetransit pass was the most preferred option, chosen by 52% of the owners
participating in the programme. Some of them (about a third) were persons that
had never or very rarely used the transit pass before. In most cases they
declared themselves ‘very satisfied’ with the public transport pass after having
used it. Quite surprisingly, the estimated cost-effectiveness of the programme
was worse in the case of the choice of a transit pass, compared to thealternatives of either purchasing a used car or a new model. The emissions due
to public transport were computed according to the average emission perpassenger-km caused by the public means of transport in the area considered.
This is partially explained by the fact that the average cost of the transit passoffered was considerably higher than the other two alternatives, about C$ 1 000.
Conversely, it may also be argued that, since public transport runs anyway,marginal emissions per passenger-km can be considered null.

66

3. CAN SCRAPPAGE SCHEMES BE USEFUL IN FORMERSOCIALIST COUNTRIES?

Most of the former socialist countries show rather different economic,
social and institutional conditions to the nine Western countries where
scrappage schemes have been implemented. They also have different rules andstandards regulating the environmental impact of the road vehicle fleet. The
possibility of successfully implementing scrappage schemes in these countries
cannot be assessed without taking these differences into account. Therefore, theconclusions drawn from the nine experiences analysed cannot be directly
extrapolated to them. Moreover, even among the group of former socialist
countries economic and institutional characteristics vary greatly. There arehuge differences, for instance, between Slovenia and the Russian Federation asconcerns any of the variables relevant to the present analysis. In addition, as
mentioned in sections 2.2-2.3, the assessment of the schemes from anenvironmental point of view relies heavily on knowledge of the average
emission factors of the main pollutants and on vehicle mileage travelled by thevarious vehicles belonging to the fleet according to age, maintenance conditions
and technological characteristics. It is not easy to get precise data on thesevariables for Eastern European countries.
For all these reasons, it is difficult to give detailed policy advice that is
valid for all these countries. Nevertheless, an understanding of the principles on
which scrappage schemes are based, together with a more detailed analysis of
the Hungarian experience may be used to draw a few concrete suggestions for
East European policy-makers.
3.1. The case of Hungary
In 1991, about 90% of the Hungarian car fleet was composed of models
produced in former socialist countries. This part of the fleet was quite old, withan average age of 9.7 years. The vehicles in use produced in Western,industrialised countries were slightly more recent (8.9 years on average). Many
cars in use had poor environmental characteristics; in particular, the old,
two-stroke engine cars and vans (Trabant, Wartburg and Barkas), which
comprised about a third of the Eastern European models (i.e. 30% of the whole
fleet).
Since then, the Hungarian fleet has grown steadily: from about 2 million
passenger cars in 1991, the fleet reached 2.3 million in 1997 (Table 6). The
67

fleet’s growth has continued parallel to two other phenomena. Firstly, the fleet
has rapidly aged: the average age has grown from 9.6 years in 1991 to morethan 12 years in 1997. Secondly, the proportion of cars in use produced inWestern countries has increased every year, reaching 44% in 1997. Not only
has the overwhelming majority of the incremental demand been satisfied by theimportation of Western models, but there also has been a considerable
replacement of the old vehicles produced in Eastern European countries. It canbe estimated that approximately 330 000 owners have replaced their Easternmodels with a Western vehicle between 1993 and 1997. The majority of theseold models have been scrapped. However, some of them might have been soldto lower-income individuals in foreign countries. Unfortunately, there are nodata to state how many of these vehicles were exported.

Table 6. Characteristics of the Hungarian passenger car fleet
Cars produced in Cars produced Two-stroke
engines overin former
Western countries
all Easternsocialist(incl. Japan)
modelscountries

Year

Passenger
cars in use

Averageage

1991

2 015 000

9.6

11%

89%

34.0%

1993

2 094 000

10.3

23%

77%

33.7%

1997

2 298 000

12.1

44%

56%

37.2%

Source: ECMT and data from the Hungarian Ministry of Transport, Infrabook series.

The increase in the average age concerned not only the Eastern models, butalso Western cars. In 1997 this reached 9.7 years (against 14.1 years forEastern models). The rapid ageing process is explained by the fact that, asshown in Table 7, a substantial amount of the cars imported during the period
analysed were old, second-hand vehicles. Table 7 shows that the average age ofthe total first-registered cars has been progressively decreasing. This has been
due to two main reasons. Firstly, as the Hungarian economy (and the average
household available income) has grown, people could afford to buy newer
models. Secondly, this trend has been considerably reinforced by the
introduction of an upper-age limit for the importation of used vehicles. This
limit, initially set at ten years maximum age in 1991, was progressively reduced
to 8, 6 and finally 4 years in 1997.

68

Table 7. Proportion of imported, second-hand Western vehicles to total
first registrations of passenger cars in Hungary (1993-1997)
1993

1994

1995

1996

1997

Western used cars

80 02556 47262 92534 08310 968(% of firstregistrations)(62.8%)(53.6%)(52.6%)(34.9%)(12.8%)

Total firstregistrations

127 337

102 502

118 91296 72581 735

Average age

6.1

5.1

4.9

3.5

1.2

Source:Hungarian Ministry of Transport, Communication and Water Management,
Infrabooks series.

A scrappage incentive for the owners of two-stroke engines, briefly
summarised in Box 2, was introduced in 1993 in Budapest (where about 25% of
the Hungarian car fleet is concentrated) and then extended to the whole country.
The first scheme was supported by the city of Budapest, while the second was
funded by the Hungarian Environmental Authority. These schemes were notsuccessful. The total number of Eastern-brand cars was already decreasing
before the introduction of the incentive. There was no substantial accelerationof this trend from 1993. In particular, the proportion of two-stroke engines
amongst Eastern models in use (last column of Table 6) did not show any
substantial reduction. On the contrary, it increased slightly from 34% to 37%
of total Eastern models from 1993 to 1997. This suggests that during thisperiod their scrappage rate was even lower than that of the other (non-targeted)
Eastern models.
As already discussed in section 2.3, one reason for the limited success of
this programme can be found in the specific requirement to purchase a newmodel as the replacement car. The average net annual income of a Hungarian
worker in 1997 was about one-fourth of the price of a new vehicle of average
size (1.4l to 1.5 l engine displacement). The incentive given by the state forscrapping a two-stroke-engine car corresponded to 2-6% of the price of a newvehicle of that size. Although attractive, this incentive could hardly persuade alower-income family to replace the old vehicle. To make a rough comparison,
the first French scheme, Prime à la casse, (see Box 2) gave an incentive ofsome 5-6% of the average expenditure for a new model, (the same order ofmagnitude as in the Hungarian scheme). However, the net average annual
69

income of a French worker in 1997 was slightly higher than the average price ofa new car. In fact it corresponded to 41 weeks of wages [CCFA, 1998 (a)].29 As
most two-stroke-engine car owners are lower-income individuals, it is very
unlikely that they will be able to buy a new model, even with the incentive.
They will rather try to purchase second-hand replacement vehicles, preferably
old, Western cars, as in most cases they are more comfortable and more reliable
than Eastern European models of a similar age. However, the 1991 age limit on
imported cars, that subsequently has considerably tightened, has seriously
constrained the supply of these replacement cars and consequently, might haveincreased their market value. As a result, many lower-income owners may have
kept their old vehicles for some more years, postponing the replacement
decision to a future date (when they expect to be able to spend more).
The scrappage schemes simultaneously introduced for heavy duty vehicles(buses and trucks) have been more successful. A state incentive of Ft 750 000(about US$ 3 600, 1997) has been given for either swapping an old bus (nolower age limit was imposed) with a new one complying with the most recent
emission regulations, or for changing just its engine. Similar incentives were
given to exchange old trucks or their engines for new, low-emitting models.
The owners of the old vehicles could buy rather cheap replacement vehicles
produced in Hungary, which could also obtain some benefits from the scheme.
During the same period, several other policy measures were adopted to
improve the environmental performance of the Hungarian car fleet. Some ofthem targeted the environmental and safety quality of new registrations. The
emission standards for newly registered vehicles have been considerably
tightened. From May 1995, only catalysed vehicles may be put into circulation.
From 1997, all cars registered for the first time must comply with ECE R.83.01
standards. Meanwhile, the import tax on foreign vehicles was reduced for cars
fitted with catalytic devices. Passenger cars without catalytic converters still
represent the majority of the fleet, but their percentage over the whole fleet isdecreasing rapidly. They accounted for almost 90% of the fleet in 1995 and
82% by the end of 1997.
Other measures had broader targets. Economic incentives have been given
to promote the introduction of catalytic devices for all cars, whether newly
registered or already in use. A 25-50% reduction in the annual vehicle
registration tax was awarded to cars provided with catalytic devices, dependingon the quality of the emission control technology applied to the vehicle. A
similar tax reduction was granted to trucks fulfilling the most recent Economic
Commission for Europe (ECE) regulations.

70

A third group of measures was directed more to the vehicles already in use.
From 1995, a compulsory yearly inspection, checking also emission rates, wasintroduced for non-catalysed vehicles. Vehicles that fail to pass the inspection
are not allowed to be driven.
Last but not least, since 1994 the government has given a subsidy to any
owners who retrofit their cars with catalytic devices. The subsidy, initiallycovering about 60% of the retrofitting cost, was later changed to a lump-sum
amount of Ft 25 000 (roughly, US$ 120) per car, which almost entirely covered
the cost of retrofitting. The retrofitting programme has been quite successful, as
it has involved about 100 000 cars from the date of its introduction. It has been
estimated that retrofitting old, two-stroke and four-stroke models produced in
the East European countries (Trabant, Wartburg, Barkas, Dacia, Lada, Skoda)
led to an average emission reduction of some 50% (Meretei et al, 1996). The
reduction is much higher than 50% for hydrocarbons, just over 50% for CO andless than 50% for nitrogen oxides.
3.2. The general context: some characteristics of the recent evolution ofEastern European car fleets
3.2.1.

The rate of growth of Eastern European fleets

Figures 10 and 11 give some basic data concerning GDP per head,motorization (cars per 1 000 inhabitants) and fleet growth rates for someEastern and Western European countries.30 As regards Western countries, thegraph only represents those which have implemented scrappage schemes.
First of all, cross-section data given in Figure 10 show a positive
correlation between GDP per head and the number of passenger cars per
1 000 inhabitants. The scatter also seems to suggest that the relation between
GDP and motorization is steeper for lower-income levels and becomes
progressively flatter as the GDP per capita grows. The motorization index in
1995 is below the level of 50 cars per 1 000 inhabitants for Moldova andAzerbaijan, these being countries that also have the lowest GDP per headamong those considered. Then it increases extremely rapidly with GDP. For
instance, Estonia and the Czech Republic have almost three times the
motorization level of Russia and Romania, while their GDP per capita is just
30-50% higher. The increase in the motorization level then becomes
progressively lower when a country approaches the GDP per head andmotorization values of the Western countries considered. Yet even among the71

latter, there are rather big differences, as shown, for example, by the dispersionof data concerning Greece31, Italy, Denmark and Norway.

Figure 10. Motorization as a function of GDP per head in some Easternand Western European countries
600.0

Cars/1000 inhabitants in 1995

ITA
500.0
NOR
FRA
400.0
SVN

ESP
DK

CZE

300.0

IRL
EST
HUN
BGR
LTU
POL
SVK

200.0

GR

HRV
LVA
100.0 ROM

RUS

AZE
MDA
0.0
0

5000

10000

15000

20000

25000

30000

35000

GDP per head (US $ 1990) in 1995
Source:

ECMT, based on data from Eurostat/UNECE/ECMT (1998), IEA (1998) and
ECMT (1998b).

Although there are relevant differences among them, most of the Eastern
European countries are actually going through a phase of accelerated growthrate in the passenger car fleet. Some countries (Moldova, Azerbaijan) have notyet started, while others (Slovenia) might in the next few years approach agrowth rate slowdown. However, on aggregate they have an average fleet
growth rate substantially higher than most of the Western European countries.
That also means that, compared to Western European countries, in these regions
the proportion of car purchases that are incremental to the existing fleet (see thedefinition of incremental and replacement demand given in section 1.1.1.)
within total first registrations is substantially higher then that of replacement
purchases.

72

Figure 11 confirms this trend. Average fleet growth for the years
1993-1996 is represented in the graph together with the motorization level for
1995. In spite of considerable differences among single cases, countries thatwere placed in the lower-left corner of Figure 10, such as Romania, are now
placed in the left, upper part of the graph,32 meaning that their passenger car
fleet is growing rapidly. By contrast, the lowest growth rates among thecountries considered are shown by France, Norway and Italy, which alreadyhave a high level of motorization. In these countries, the proportion of
replacement purchases among total first registrations should be higher,
compared to most of the Eastern European states. Figure 10 and 11 also suggestthat the growth rate of Eastern European car fleets may be expected to remain
relatively high for the next few years, as there still is a considerable gap
between their motorization levels and those of most Western European
countries.

Figure 11. Fleet growth rate as a function of motorization in some Easternand Western European countries

Annual average fleet growth rate
(1993-1996)

12.0%

ROM

10.0%
EST
LTU
8.0%

GR

6.0%
POL

HRV

BGR

CZE

SVN

4.0%
ESP

SVK
HUN

DK

2.0%

FRA

ITA
NOR

0.0%
0.0

100.0

200.0

300.0

400.0

500.0

600.0

Cars/1 000 inhabitants in 1995
Source:

ECMT, based on data from Eurostat/UNECE/ECMT (1998), IEA (1998) and
ECMT (1998(b)).

73

3.2.2.

The quality of the motorization process in Eastern European
countries

If the Hungarian case is somewhat representative of the whole group of
former socialist states, it can give some further indications as to the quality of
the fleet’s development in these countries. The starting point is characterised bya rather old fleet, (around ten years for the average age), where the vast majorityof vehicles in use have been manufactured in former socialist countries.33 Then,the first phase of the evolution sees the importation of large numbers of
second-hand models produced in Western industrialised countries, the averageage of which is around 6-8 years. Some of these vehicles are incremental to theexisting fleet, while others are bought to replace old, Eastern models, that areeither scrapped or sold to other low-income households in foreign countries.
The country of destination might have been, especially in the first period,
another Eastern European one. However, many of these countries quickly
introduced either a ban or a high customs tax on the importation of older
vehicles. Possible alternative destinations are some Asian or African countries.
The beginning of this first phase may come at different times and may be
more or less pronounced according to the specific characteristics of the country
considered. For instance, the cold winters and bad conditions of some roads in
Russia may make it more difficult to use Western-produced vehicles, whosecharacteristics have been conceived for very different situations. Moreover, it
may also be difficult to find spare parts for Western models, making themaintenance costs high. This could deter some consumers from importing
second-hand Western cars. Nevertheless, the data available confirm that, on
aggregate, the qualitative trend described is valid for the bulk of Eastern
European countries.
As the majority of annual, first registrations consists of second-handvehicles, the fleet during this phase will rapidly grow older. This does notnecessarily mean that the average emission rates of the fleet becomecorrespondingly worse. For instance, a second-hand, Western-manufactured
vehicle may have a similar or even better environmental performance,compared to an Eastern vehicle of about the same age or slightly more recent.
Hence, the massive introduction of Western cars might even have decreased theaverage emission rate for many pollutants.34 Actually, no definite conclusion
can be drawn on the change in the average emission patterns implied by thistrend without having more precise information on the average emission rates ofEastern and Western vehicles according to their age.
In subsequent years, the average age of first-registered cars declines
continuously. Most of the cars first registered are now new models, while74second-hand imported cars are in the minority, although they are considerable innumber.35 The age of the fleet continues to grow, but more slowly, since the
newly registered vehicles are more recent. The proportion of Western carsamong first registrations remains rather stable (what changes is the ratio
between new and used imported vehicles). The proportion of Western cars in
the total number of vehicles in use continues to grow. This trend will change at
a future stage only if the safety, reliability and comfort characteristics ofEastern-produced vehicles becomes comparable to those of the West.
At the same time, concern for environmental problems has grown andvarious measures have been taken to curb the fleet’s atmospheric emissions.
The emission standards for newly registered cars are being considerably
tightened, in order to close the gap with Western Europe’s most recent
regulations. In this phase, bans or taxation on the import of older vehicles areoften introduced.36 Technical inspections of the vehicles in use are more
frequent and include tests on emissions. As a result, the environmental
performance of Eastern fleets may improve considerably. For the time being,
however, there still remains in circulation a relatively large number of very old,
Eastern European model cars37 that are in a rather deteriorated working
condition with poor environmental performance.
3.3. The possible role of scrappage schemes in Eastern European countries
As underlined in section 2.2.1., scrappage schemes can be particularly
useful when there is a relatively small percentage of vehicles responsible for alarge part of the overall fleet's emissions, the so-called ‘gross emitters’. In thiscase, the incentive may manage to eliminate a relevant quantity of atmosphericemissions by retiring a rather limited number of selected vehicles. This would
avoid major market perturbations and would keep the overall expenditure forthe scheme at a lower level.
The ‘gross emitters’ may not necessarily be the oldest cars of the fleet,although this is often the case. They could also be more recent vehicles that,
because of poor quality and/or bad maintenance, have a particularly low
environmental performance. It is also important to underline that the concept of‘gross emitters’ is a relative one. Even a fleet with a very low average age may
have a group of cars that are ‘gross emitters’ compared to most of the others. In
this case, the absolute value of the emission rates of the worst vehicles will bemuch lower, compared to those of an older fleet, and the ‘gross emitters’ may
not represent a problem. The opposite situation is found in the former socialist
countries. Although there is an ongoing, spontaneous tendency to replace old
Eastern-produced cars with more recent Western models, there still remains a75

large number of old low-quality models with bad environmental performance,
especially if compared to Western European fleets. However, it would not be
feasible and it would be too costly to implement scrappage schemes that target
all these low-quality cars. The programmes might be more successfully applied
if they managed to select the smaller number of the ‘gross emitters’ that are
relatively more polluting, in particular those with a high average mileage per
year.
Just as for Western countries, recognising a potential role for scrappage
schemes does not mean that any kind of programme will necessarily lead toenvironmental improvements, nor that it will achieve these improvements at an
acceptable cost for society. It remains absolutely fundamental to study carefully
its design, taking into account the particular economic, institutional andtechnological conditions of the country where the programme could be
introduced.
As concerns Eastern European countries, the economic conditions
currently prevailing (together with the results of the Hungarian experience)suggest that cash-for-replacement schemes that require a switch to a new-model
car are not going to be successful. New cars are very expensive with respect tothe average purchasing power of Eastern European households. In general,
those families who can afford to buy a new model do not own an old, poorly
maintained car38 or if they do, they would soon replace it anyway, even without
the incentive. On the contrary, the owners of the ‘gross emitters cannot afford
to purchase new models. The incentives they need in order to buy these would
be too high to make the scheme feasible and efficient.
The situation would be slightly different if cash-for-replacement schemes
were directed only at heavy-duty vehicles. Buses and lorries are usually owned
by firms, whose purchasing power is high relative to low-income households.
There is, however, very limited experience with scrappage schemes that target
trucks and buses. Therefore, it is difficult at the moment to draw meaningfulconclusions as to their possible success or the cost-effectiveness of reducing
atmospheric emissions. These kinds of schemes are worth further examination
especially in light of the positive Hungarian experience.
Within this economic context, cash-for-scrappage schemes may be more
useful. The low-income owners of the ‘gross emitters’ would probably use the
incentive to buy old, second-hand, Western vehicles. Although these models
will surely not comply with the most recent EU environmental standards, theymight still have average emission rates considerably lower than those of the old,
Eastern models eligible for the incentive; particularly if the eligibility criteria
are properly defined, targeting the ‘gross emitters’. The possibility of76

implementing useful and efficient schemes relies heavily on the averagecharacteristics of the scrapped and replacement vehicles. The former may be
influenced through the selection requirements. As the USA schemes haveshown, this selection can be considerably helped by the use of the existing
inspection and maintenance programmes. As concerns the replacement
vehicles, they will probably have the characteristics of an ‘average’ carbelonging to the fleet in use. For this reason, it is of vital importance that the
fleet in use be properly maintained; that it complies with the environmental
standards in force; and that the average environmental performances andmileage travelled by the cars in use are known with reasonable approximation.
All in all, this means that scrappage schemes can be implemented
successfully only if the set of fundamental transport and environmental policies
and regulations (i.e. a set of emission and safety standards for both vehicles in
use and first-registered cars; technical and environmental I&M programmes) arealready carefully implemented.
As concerns the average quality of the replacement vehicle, it would beparticularly important to check carefully the environmental and safetycharacteristics of the second-hand imported cars, preventing the importation ofpoor-quality models. But, as it was argued for Hungary, too strict requirements(or complete bans) for imported, second-hand vehicles may actually raise theaverage price of the replacement cars and so hinder the scrappage of older‘gross emitters’ owned by lower-income individuals. There is a trade-off
between the improvement in the quality of newly registered vehicles that can beachieved through import restrictions (which increases the average price of
replacement cars) and the renewal rate of the worst performing cars of the fleet.
A possible suggestion may be to control the importation of a limited number ofcheap, second-hand cars that are carefully checked and selected throughinspection and maintenance programmes and then made available to the ownersof vehicles eligible for the scrappage incentive. In this case, the scheme would
be structured as a special cash-for-replacement programme, in which thereplacement vehicles would not be new, but selected according to theirenvironmental and safety characteristics, together with their market price. Sucha scheme, however, might be particularly exposed to the risk of bribes andcorruption of I&M operators.
As suggested for Western countries, also in this case, the policy-makers
should carefully check the possibility of implementing scrappage schemes
against other feasible alternative policy tools that may achieve the same goal. It
is extremely difficult, however, to make generalisations as to which measures
may obtain the desired results in the most efficient way.

77

Since most Eastern European countries are currently experiencing very
rapid fleet growth with a relatively high number of new registrations every year,
policy-makers should steer their attention generally more towards measures that
boost the purchase of cleaner cars, independently of scrappage decisions.
These measures could either be environmental regulations, e.g. stricter emission
standards for newly registered cars, or economic incentives to buy (and use)
‘greener’ vehicles. These policies would offer the opportunity of obtaining, inthe mid to long term, the advantage of high motorization levels, while
simultaneously avoiding some of the environmental disadvantages that havecharacterised Western fleets in the past. Scrappage schemes may still have an
important role in getting rid of old ‘gross emitters’, both from the environmental
and the industrial point of view. However, they will be relatively less relevant,compared to their role in Western European countries.
As concerns the environmental characteristics of existing vehicles,
retrofitting programmes remain a valid alternative to scrappage schemes even in
Eastern European countries. Previous experiences (Hungary) seem to be rather
positive. However, the environmental benefits of retrofitting old Eastern cars
have quite a limited duration. The catalytic devices deteriorate after 20 000 to
80 000 km, depending on the particular model to which they have been attached(Meretei et al, 1996). After that, if the vehicle is not scrapped it may begin tohave high emission rates.39 The duration is shorter for older, poorer technologies(two-stroke engines) and for badly maintained vehicles. For these, scrappage
schemes still represent a more valid alternative. Moreover, scrappage
programmes may still represent a useful policy tool for some categories ofvehicles - buses and trucks - that are used for a high mileage per year and on
which the productivity and performance of firms depend.

78

CONCLUSIONS AND RECOMMENDATIONSAll scrappage schemes implemented to date put improvement of theenvironmental performance of the car fleet among their main goals. The
present report attempts to assess schemes mainly according to this criteria. It
includes some additional analysis of the impact of scrappage schemes on thevehicle manufacturing industry, on markets for other durable goods and on thebenefits of improved vehicle safety. Surprisingly few of the scrappage schemes
examined included a quantitative assessment of their impact on the environmentor their cost effectiveness with regard to environmental protection. Most
assessments were limited to the impact of schemes on the automobile
manufacturing industry and in some cases on GDP and employment.
General conclusions
Scrappage schemes have two main possible impacts on the environment.
The first is positive: they may reduce the load of atmospheric emissions causedby the car fleet since they substitute older, more polluting vehicles with newer,
cleaner ones. The second is negative: they shorten the average car’s life and,
therefore, if the schemes are permanent or repeated over time, they increase theamount of energy and materials used and emissions caused by all the processes
involved in car construction, dismantling, scrapping and recycling.
As the difference in environmental performance between some older
vehicles and most newer ones is currently substantial, the positive effect islikely to prevail for most of the schemes implemented. Newer vehicles are also
more durable and maintain design emissions levels over greater mileages thanolder vehicles. The increasing incorporation of on-board diagnostics, whichshould reduce the likelihood of new vehicles performing below design
emissions standards as they age, is also a positive factor. Scrappage schemes
are likely to involve substantial reductions in emissions, per km driven, ofhydrocarbons and carbon monoxide in particular. To a more limited extent,
they may also reduce NOX emissions. The effects of scrappage schemes ongreenhouse gas emissions are very uncertain, however, and may even be
negative (i.e. some schemes might have increased the overall amount of CO2
emitted). The sign and size of changes in CO2 emissions will greatly depend on
the detailed design of the schemes. Reductions in specific emissions of all
kinds may also be partially off-set by rebound effects — consumers benefitingfrom cash-for-replacement schemes may take the opportunity to purchase amore powerful car and use the new vehicle more intensively.

79

The emission reduction achieved by temporary schemes will itself be
temporary and the improvement achieved short-lived. The natural renewal rateof the fleet, without any incentives, would replace the same old vehicles in any
case some two or three years later.
The possible gains from permanent scrappage schemes rely on
improvements in average emissions from new generations of vehicles andengines. Scrappage programmes will achieve net environmental benefits only if
future vehicles have emission rates substantially better than older models and if,
at the same time, the environmental impact of vehicle construction anddismantling processes is reduced. The introduction of three-way catalytic
converters resulted in significant reductions in specific emissions but
technological improvements since then have resulted in only more modest
reductions. The window of opportunity for achieving large benefits from
scrappage schemes is therefore narrowing, as an increasing part of the existing
fleet comprises vehicles equipped with catalysers.
New technologicalbreakthroughs, for example one that reduces cold-start emissions, could alter
this trend if commercialised in the future.
Assessments of scrappage schemes cannot be made only on the basis ofemission standards or average emission factors for different model years, but
depend on economic variables affecting the behaviour of car owners and on thecost of the scheme. Where the cost per tonne of pollutant reduced is high, otherenvironmental policy measures should be considered instead of scrappage
programmes. The structure of taxation in relation to the ownership and use ofvehicles is a key element in determining the overall economic incentive forvehicle stock turnover. The cost-effectiveness of scrappage schemes may beundermined if they run counter to incentives arising from the existing structureof taxation (for example, if older vehicles pay lower annual vehicle charges than
new cars).
Both the size of the emission reduction achieved and cost-effectiveness
depend heavily on the detailed design of scrappage programmes.
Some lessons from the different types of programme implemented to date
Two broad groups of scrappage schemes have been identified. Under the
first kind, cash-for-scrappage, incentives are available whatever the subsequent
replacement decision taken by the consumer. The second type of scheme, cashfor-replacement, provides an incentive payment that is conditional upon a
specific kind of replacement vehicle being chosen (typically, but notnecessarily, a new-model car).
80

When the selection of vehicles to be retired is made carefully, cash-forscrappage schemes may achieve useful emission reductions at a reasonable cost,i.e. at a cost comparable to the main alternatives for reducing fleet emissions.
The number of vehicles retired by either type of scheme should not,however, go beyond a limited number of vehicles selected among the ‘grossemitters’ in the fleet. Otherwise the cost per tonne of emissions avoided
increases considerably. Moreover, by bringing forward a large number ofscrappage and replacement decisions, the schemes may cause considerable
perturbations to the car market.
The cash-for-replacement schemes implemented up to the present time
appear to have been much less cost-effective. In most cases, they constrained
the consumer to purchase a new car. In doing so, they have excluded
lower-income groups who cannot afford to purchase new cars even with an
incentive bonus. This makes the schemes somewhat inequitable, but more
importantly prevents them from attracting many of the oldest cars in the fleet,used typically by lower-income families, intensively, as their principal means oftransport. These schemes, therefore, have not properly selected the vehicles tobe retired, leaving in use a large proportion of the ‘gross emitters’. Moreover,higher payments are necessary to influence the decision to purchase a new car,rather than simply scrap a car (which might be replaced with a used car or not
replaced at all). As a consequence, these schemes have a high average cost per
tonne of pollution avoided and they do not compare favourably with otheralternative policy tools on purely environmental grounds.
Timing is important. The available data suggest that the average fuelconsumption of European new-model cars was higher in the early 1990s thanduring the second half of the 1980s. This implies that some of the cash-forreplacement schemes implemented in the early 1990s may have resulted in an
increase in total CO2 emissions. On the other hand, these schemes increased
the percentage of small vehicles in total first registrations. This might havecounterbalanced the increase in fuel consumption of the average car. The net
effect on CO2 emissions was of uncertain size and sign. Since the early 1990s,
average CO2 emissions from new cars have fallen back to near the low point
recorded in the mid-1980s in most countries.
Cash-for-replacement schemes might have positive economic effects on
the country that introduces them, particularly if it has a significant national car
industry. The increase in new car sales might bring about an increase in GDP
and employment. However, this increase will again be of only a temporary,short-term nature. It will also probably have some negative counter effects.
First, it will involve a fall in sales following the end of the scheme and possibly81just before a scheme is introduced and second, increased expenditure on cars
will subtract from available income for purchases of other durable goods. The
overall change in GDP and employment resulting from these effects is difficult
to assess. Macroeconomic analysis is required and this should evaluate
schemes over the mid to long term, extending the time frame beyond the direct
positive short-term effect on car sales.
The possible uses of scrappage schemes in former socialist countries
Most Central and Eastern European countries are currently experiencing
steady growth in their car fleets with average growth rates considerably higher
than in most West European countries. This means first of all, that during thecurrent phase, most first-registrations in these countries do not concern thereplacement of existing old vehicles. Instead they represent net additions to thefleet. As scrappage schemes aim to influence replacement decisions, their role both in economic and environmental terms - will be more limited, compared toschemes introduced in Western economies.
On the other hand, although the Eastern fleets are rapidly changing in bothquantitative and qualitative terms, there remain a rather large number of older
cars manufactured in former socialist countries, whose environmental and safety
performances are poor. Because of this, there may still be a potential role for
instruments that accelerate vehicle retirement.
Income constraints make cash-for-replacement schemes particularly
difficult to design successfully in the newer ECMT Member countries. ‘Grossemitters’ are typically run by households on the lowest incomes, and the cost of
a new car represents an even higher proportion of income for this segment thanin Western Europe. There may be better opportunities to introduce cash-forreplacement schemes for commercial and public vehicles. Enterprises, unlike
households, have the financial capacity and longer-term planning horizons tomake use of relatively small cash incentives, tax credits or depreciation
allowances. Moreover, trucks and buses typically contribute an extremely large
share of total fleet emissions in the early stages of fleet growth and economic
restructuring. In Western Europe too, buses often represent a discrete group of‘gross emitters’ in cities.
Before targeting an acceleration of fleet renewal, the government of any
country must ensure that the fundamental set of transport and environmental
policies regulating emissions are already effectively implemented and enforced.
These include an adequate framework of legislative and economic instruments
including registration documentation, fully implemented emissions regulations
82and their effective enforcement through pre-sales testing and after sales
inspection and maintenance. Not all of the former socialist countries fulfil thiscondition. In Russia, for instance, inadequacies include emissions regulations
that are not always enforced in manufacturing and insufficient inspection andmaintenance capacities.
Overall, there is a major failure to enforce
environmental regulations. For countries such as Russia, incentives foraccelerated vehicle retirement might become useful at some later stage after thefundamentals have been addressed, when they might be applied to specificurban areas with higher than average levels of motorisation.
Other policy tools
The specific aim of this report is to assess scrappage schemes. Other
possible instruments for improving fleet environmental characteristics havebeen mentioned but not analysed. This does not mean that they are consideredless useful. On the contrary, effective emissions control policies are
prerequisite to the introduction of scrappage schemes. It was possible toimplement the programmes evaluated only because of emissions regulations,which over the last twenty years have considerably reduced emissions from newcars and consequently significantly improved the average environmental
performance of the fleet.
At least three different policy tools provide alternatives to scrappage
schemes — in the sense that they may bring about the same qualitative changes
in environmental impact. In some cases, they may also even result in an
increase in first registrations.
Firstly, scrappage incentives are ultimately just a way to change therelative prices of older cars with respect to newer models. The same effect may
be obtained, in a permanent way, by changing the structure of annual vehicle
taxation. German experience suggests that changing the structure of taxation to
tax older cars more heavily than new ones, on the basis of emissions
characteristics, can accelerate considerably the replacement of older cars withcleaner vehicles.
Secondly, an enhancement of inspection and maintenance programmes (inparticular as concerns environmental requirements) can also render theoperation of older cars more costly and will therefore encourage theirreplacement. Enhancing inspection and maintenance programmes may beparticularly attractive because this approach leaves the owner of a vehicle thathas failed an inspection to chose between replacing the car or repairing it,
without changing relative market prices directly.
83

A final option that is worth considering before implementing a scrappage
scheme is retrofitting. Retrofitting vehicles with catalysers or other emissions
control systems or converting engines to run on alternative fuels can in somecircumstances be more cost-effective than replacement. The potential safety
benefit of replacement is, however, forgone.

84

NOTES

1.

A more precise term for this group of pollutants is that of reactive organic gases(ROG): these include non-methane hydrocarbons and reactive oxygen-containing
organics such as aldehydes. In common use, they are more often indicated ashydrocarbons (HC) and Volatile Organic Compounds (VOC). Most of the
carcinogenic micropollutants emitted by passenger cars belong to this group,
which is referred to as hydrocarbons in this report.

2.

There can also be substantial (indirect) effects on the incremental demand throughthe price effects described in section 1.2.

3.

The number of households owing more than one car in the industrialised,
European countries is quite considerable. In France, for instance, it has been
estimated that in 1995 about 28% of families owned two or more cars. The same
proportion was 15.5% in 1981 (Morcheoine and Orfeuil, 1998).

4.

In most cases that means all cars aged from one to nine years, since the lower age
limit set has usually been ten years (see Boxes 1-3).

5.

This would imply that these owners have complete information on the effects ofthe scheme on future car prices trends, which in reality is not the case.

6.

As suggested by Licandro and Sampayo (1997), a reduction in price of new-modelcars has the effect of shortening the average life of the existing ones. If newer cars
cost less, people will replace them more rapidly. Therefore, the price fall willreinforce the effect of the scrappage incentive on the replacement rate.

7.

This occurred, although GDP per capita started increasing again from 1994.
Increased taxation needed to reduce the state deficit and finance pensions
decreased disposable income during this period. Moreover, the effects ofTangentopoli - the corruption scandal - on the economy, as well as pessimistic
future expectations, may have contributed to keeping demand relatively low.

8.

Data related to Greece seems to confirm the existence of the negative anticipation
effect: the number of first registrations showed a sharp fall after the end of thescheme (March 1993). It is difficult to interpret this fall, however, since 1993 was
the year of a general economic slowdown. It is difficult to distinguish how muchof the fall in car sales was due to the anticipation effect.

85

9.

Registrations usually follow orders some two to four months later.

10. The French data confirm this conclusion.
11. There were two increases in nominal prices, in October and January 1998,
i.e. immediately after the end of the first and second phases of the 1997 scheme.
The car price index remained, however, below the general consumer price index.
12. E.g. private companies that want to buy emission reductions to comply with legal
requirements, as happens in the USA.
13. The damage can be up to one order of magnitude higher in the worst cases. See,for example, the case-studies of Milan and Paris evaluated according to the same
methodology in Fontana and Frigerio (1997) and Rabl and Spadaro (1998).
14. The conclusions presented in this paragraph concerning permanent schemes arealso confirmed by the analysis of Van Wee and Meurs, (1994).
15. See Glazer, et al., 1995; Lawson, D. (1995), “Passing the Test - Human Behavior
and California's Smog Check Programme.” Journal of Air and Waste Management
Association, Vol.43, 1993, quoted in Hall, 1995.
16. There is no definite relationship between the two variables. What is suggested
here is that greater availability of cars will probably lead, to some extent, togreater use and, therefore, to a greater amount of emissions.
17. Overall fleet emissions also vary according to environmental conditions (inparticular HC emissions vary according to average ambient temperature). This is,however, a variable that is not within human control and it will not be consideredfurther.
18. For the sake of simplicity, it is supposed that neither the emission factor nor the
mileage travelled would have changed during the remaining lifetime L. The same
assumption is also made for the replacement vehicle. Moreover, only runningemissions are considered in the formula. A more precise evaluation should also
take into account evaporative hot-running losses and resting emissions, whose
rates are usually given in grams per trip and grams per day respectively. The short
representation given has been chosen because of its relative simplicity.
Evaporative emission reductions are, in fact, among the main achievements of
replacing old vehicles. The simplification made does not, however, change thequalitative results of the report.
19. This danger may be lessened in the future by the voluntary agreement reached by
the European car constructors with the European Commission. According to thisagreement, CO2 emissions will be lowered from 186 g/km in 1995 to 140 g/km by
the year 2008. On the other hand, this may be partly counterbalanced by the86

progressive spread of energy-consuming options on board, in particular air
conditioners. Of the French cars first registered in 1995, 16% were equipped with
air conditioning (Morcheoine and Orfeuil, 1998).
20. See also US Congress, OTA, 1992; California EPA-ARB, 1996.
21. Such questionnaire results are usually not considered very reliable, as there might
be an incentive for respondents to be strategically biased in their answers, trying to
influence the outcome of the study. On the other hand, it is extremely difficult toobtain information from any real data (through so-called revealed preference
methods), as the influence of the vehicles’ characteristics on VMT cannot easily bedisentangled from all the other economic and social variables that influence it.
22. As the schemes implemented usually have a very limited duration and are notannounced in advance (to avoid major market perturbations), participation in the
programme is difficult for lower-income families for two reasons. Not only does
it require a considerable amount of money, but it also needs a considerable‘liquidity’. In other words, the owner of the old vehicle must be able to gather thesum in a few months. Only better-off families are likely to be able to afford this.
23. For each age cohort, the scrappage rate was computed as a ratio between the cars
scrapped during the year t and the number of registered cars in use at the end of
the year t-1.
24. On the other hand, the fleet growth rate in Greece, where the incremental demand
was relatively high, decreased during the scheme, compared to the rate of growth
before and after the scheme.
25. The Illinois ‘cash for clunkers’ pilot project that retired about 200 cars also
introduced a differentiation according to the estimated emission rates of thescrapped vehicles. The scrappage of ‘dirtier’ cars was encouraged by a higher
incentive. No similar attempts were made in any other scheme.
26. In France and Spain, the incentive was taken up by very few owners of vehicles
aged 7-10 years.
27. See Bickel et al, 1997; ZEW, 1996; IWW– INFRAS, 1995; ECMT, 1998.
28. However, this measure also incurs the risk of worsening the performance of ‘grossemitters’ in the short term. Some owners may not make the necessary repairs,
because either they cannot find the necessary spare parts or because scarcity has
increased their costs too much.
29. The ratio was even lower for the USA, where during the same year the average
expenditure on a car was equal to 23.5 weeks of the average net wage.

8730. Not all the Eastern European countries of interest are represented on the graphs, ascompatible data were not available. The aim of these graphs is not to give detailed
information on single countries, but rather to illustrate the general trend. GDP per
head is just one of the variables that can be considered to explain car purchasedecisions. Other factors among those sketched out in section 1.1.1. may also playa substantial role. The representation given by these figures is, therefore, rather
simplistic. However, it gives a rather clear qualitative picture of some basic
trends.
31. The data shown in Figure 10 for Greece needs some further comment. As theaverage taxation on private vehicles was particularly high in this country, many
owners registered their cars as commercial vehicles for which they pay lower
taxes. By including this category of vehicles, the motorization index becomesslightly higher, about 255 cars per 1 000 inhabitants (Baltas et al., 1995). Still,this does not significantly change the general information contained in the graph.
32. There were no data from the same source and for the same years (1993-1996)
concerning Russia. However, according to the UNECE (1998), the fleet growthrate of this country in 1995 and 1996 was around 10%. This places the RussianFederation very close to Romania in Figure 11.
33. This hypothetical starting point can be more or less recent according to theparticular country considered. Slovenia, Estonia, Hungary and the Czech
Republic are probably in advance with respect to other Eastern European states on
the path of evolution described.
34. There is some evidence to show that there has been an improvement in the qualityof air in Budapest between 1990 and 1993 regarding ambient concentrations oflead, CO and formaldehyde (Meretei et al., 1996). Meanwhile, the fleet’s age has
been increasing. Unfortunately, there are no data concerning traffic volumes forthe same period.
35. Data from Poland confirm this trend. In 1991, 1993 and 1996 about 52%, 29%
and 24% respectively of annual first registrations were accounted for by imported
second-hand vehicles. The share of imported new models has simultaneously
increased from 17% to about 38%.
36. To our knowledge, bans or import taxes have been introduced in Hungary, Poland,
Estonia and Russia. This list of countries is probably not exhaustive.
37. For instance, at the end of 1995, 48% of the passenger cars in use in Latvia were
either UAZ or Moskovich models. Two-thirds of the Latvian car fleet was older
than ten years, while only 5% had been manufactured in the last five years. Only
5.3% of the cars first registered in 1995 were new models. (Eurostat, 1997).

8838. Compared to Western European countries, a very low proportion of Eastern
European households own two or more cars.
39. Retrofitting might also decrease the fuel efficiency of the vehicle by up to 3% oreven more if the retrofit devices are of poor quality (Meretei et al, 1996).

89

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