Money for nothing? Revisiting scrappage subsidy programmes

Article in the journal ESB: Targeted car scrappage subsidies can contribute to an inclusive energy transition

This article argues that a car scrappage subsidy can be part of an efficient and more inclusive policy mix to reduce emissions from road transport. A key observation in this study is that old and polluting vehicles are typically owned by lower-income households, who cannot afford replacing them with new ones. To stimulate the removal of old vehicles from the roads, the government can tailor the programme to the needs of lower-income households, for example by allowing the purchase of a used – although still relatively clean – replacement vehicle, or by adding income-based criteria for participation.

Leiden University Research Memorandum: Money for nothing? Revisiting scrappage subsidy programmes

This study analyses the effects of eligibility requirements for participation in scrappage subsidy programs on consumer behaviour and environmental outcomes. To this end, it draws on insights from an economic model of the car market and from a nationwide scrappage subsidy programme implemented in the Netherlands in 2009-10. In that programme, the stringency of eligibility requirements on retired and replacement vehicles varied by fuel type. The eligibility requirement on replacement gasoline vehicles was relatively lax: participants could opt for a second-hand vehicle up to 9 years old. On the other hand, replacement diesel vehicles had to be almost new. Differences in the effects of the programme by fuel type illustrate how the stringency of eligibility requirements determines outcomes. The study shows that laxer programme requirements on replacement gasoline cars led to a stronger increase in scrappage and cleaner car purchases. By contrast, the strict requirements on replacement diesel vehicles mostly discouraged owners of polluting cars from participating in the programme.