Vehicle Scrappage and Gasoline Policy

We estimate the sensitivity of scrap decisions to changes in used car values and show how this scrap elasticity produces emissions leakage under fuel efficiency standards, a process known as the Gruenspecht effect. We first estimate the effect of gasoline prices on used vehicle values and scrappage of vehicles with different fuel economies. We then estimate the scrap elasticity itself, which we find to be -0.7. When applied in a model of fuel economy standards, 13-16 percent of the expected fuel savings leak away through the used vehicle market. This effect rivals or exceeds the importance of the often-cited mileage rebound effect.