(Source: Economic Policy Institute)

Not even the most optimisitic American could have envisioned this soaring  popularity of “Car Allowance Rebate System” (CARS) — better known as “cash for clunkers.” CARS has proven to be very popular, and the $1 billion originally slated for credits appears to have been all but exhausted less than a week after the program went into effect. and is now awaiting another $2B lifeline, which is expected to come through after the Senate vote.

The program has already prompted thousands of Americans to upgrade older, less fuel efficient cars and is generating much-needed sales for troubled automobile manufacturers and related industries while decreasing gasoline consumption and improving environmental outcomes. But has there been an attempt to quantify these  impacts on fuel efficiency and environment? Yes.  The Economic Policy Insititute analyzes the fuel efficiency improvements & emissions reductions and made it easy for us to understand.  Here is a quick peek at the study & the awesome graphic that explains the cost savings in fueling a clunker vs. a new car.  The study methodology involves the following elements:

• Study authors assumed that the average credit is $4,000 and that all of the $1 billion is spent on credits, thus producing 250,000 trade-ins.
• The average miles driven per year — 14,450 — is the per vehicle estimate from the US Department of Transportation for 2006, the latest available data.
• Used forecasted annual gas price of $2.36/gallon from the Department of Energy.
• Derive CO2 emissions from the EPA and the Intergovernmental Panel on Climate Change, who assume that 1 gallon of automobile gasoline is equivalent to 19.4 pounds of CO2.
• 58% of all crude oil is from foreign sources and that 44% of all crude oil goes to gasoline production (both estimates from the Department of Energy for 2008).

Based on these assumptions, the study team has determined that the fuel economy improvements will save an estimated $821 per traded vehicle annually (see chart above).  How? Reduced gas consumption means less dependence on foreign oil, and more money in the pockets of consumers that could be used for domestic consumption. According to the Department of Transportation, the average fuel efficiency of old cars traded in via the program is 15.8 miles per gallon, while new cars had an average MPG of 25.4.

On average, total gas consumption will drop by 87 million gallons per year, and American consumers will use 22.2 million fewer barrels of foreign crude oil. The environmental impact of reduced gas consumption is considerable as well. We estimate that the program will result in about 850,000 fewer tons of CO2 emissions per year (3.4 tons per vehicle annually). This reduction equals more than two-thirds of the annual CO2 emissions linked to household electricity, heating, and waste.

Click here to read the entire article. (Hat tip @NPR)