Even a glance at the numbers makes clear that the rapid decarbonization of transportation is critical if we are to have any hope of keeping climate change within less-than-catastrophic dimensions.

All told, transport was the source of 29 percent of total U.S. carbon emissions, with the tonnage emitted increasing by one-fifth since 1990. Indeed, in spite of the high profile of electric vehicles, fossil fuels still dominate the sector and only government-mandated gains in car- and truck-engine liquid fuel efficiency have prevented even worse backsliding. Much of the very modest progress in containing total U.S. carbon emissions has been accomplished through market-induced retirement of coal-fired electricity plants and the success in cutting the cost of wind and solar power to make them competitive with natural-gas generation.
¶ Actually, analyzing transportation as a whole doesn’t get you very far in the context of devising strategies for emissions reductions. Transport includes everything from autos to rail to aircraft to multimodal mass transit systems, and the economics of decarbonization varies widely among them. On the one hand, the electrification of autos no

longer faces many technical or economic hurdles. Getting from here to there is mostly a matter of creating the right private incentives and expanding the electricity sector sufficiently to make power available when and where it’s needed. The same can’t be said, though, for heavy trucks and long-range aircraft, where the challenge of creating adequate substitutes for energy-dense liquid fossil fuels is daunting.

But we would argue that a close look at one past experiment with energy efficiency in autos and light trucks reveals the potential for harvesting some low-hanging fruit in a transportation subsector that seems especially resistant to quick emissions fixes: commercial aviation, where the economic life of an aircraft can reach 30 years. Here we discuss our current research into the feasibility of applying the 2009 “cash for clunkers” approach for cars to accelerating the retirement of aging, fuel-guzzling planes still in the airlines’ fleets.

The potential savings in emissions would be modest compared to, say, the development of cost-effective ways to remove CO2 from
industrial smokestacks. But the outcome is more certain – and may even point the way to parallel cash-for-clunkers programs in sectors with enormous potential savings such as building heating and residential appliances.

Some Quick History

Almost all mainstream economists, it is safe to say, would prefer to use across-the-board taxes on carbon emissions (or the similar cap-and-trade approach) as the first-line policy in the battle to contain climate change. “Internalizing” the external societal costs by charging emitters according to the damage they do would minimize direct government intrusion in the market even as it reduced waste. But ever since climate change became a political wedge issue, this approach has been a political dead end, and therefore policymakers have had to turn to “second best” incentive systems like mandated minimum mileage standards for the carmakers’ fleets. Then, in 2009, at the suggestion of Alan Blinder, a former vice-chair of the Federal Reserve, the Obama administration took the opening created by the Great Recession to try a novel approach that would cut emissions, stimulate demand for cars from the lagging auto industry – and be a big hit with the public.

The cash-for-clunkers program offered a voucher – a federally financed discount – for the purchase of a new fuel-efficient vehicle in return for the trade-in of an aging gas guzzler. Car dealers were obligated to scrap the old cars (as opposed to reselling them), thereby guaranteeing an immediate boost in the average fuel efficiency of the vehicles still on the road. The subsidy program was beyond popular, exhausting its $3 billion budget in less than 60 days and leading to the recycling of almost 700,000 vehicles.

Now, this use of carrots rather than sticks to induce socially desirable behavior was not celebrated by all. The net impact on income distribution was, as hoped, modestly progressive since the households taking advantage of the incentive were typically far from rich. Moreover, the program did accelerate car sales temporarily as intended, and did reduce emissions by increasing average fuel efficiency. But there’s a rub – well, two rubs.

First, the voucher payment amounted to a windfall for anyone with a vehicle in bad enough shape to have little or no resale value. Just how much slippage this reality actually cost Washington is a matter of debate. More relevant here, while the clunkers gambit certainly reduced carbon emissions, the cost to the U.S. Treasury may have been as high as $400 per ton of carbon – considerably more than most estimates of the value of the benefits. This latter issue would no doubt be raised again in any application of the clunker fix to aircraft or any other durable equipment that runs on fossil fuels.

Let My Clunker Go

Back to the aforementioned aircraft. Commercial aviation is a relatively small but rapidly growing emitter of carbon, accounting for 2-3 percent of overall U.S. greenhouse gas emissions. It is important nonetheless, in part because these emissions tend to be concentrated around airports, and what comes out of the hind end of jet engines is more dangerous to health than the cleaner, less concentrated emissions from cars. Unlike in the cases of automobiles and electricity generation, federal intervention designed to reduce aviation emissions is mostly absent. (It’s worth noting, though, that research on sustainable, nonpolluting aviation fuels based on hydrogen and research on biofuels are now being supported by Washington.)

This lack of current regulation suggests there may be low-hanging fruit to be harvested from modest efforts to curb aircraft emissions. But there are two issues that policymakers ignore at their peril in designing incentives to accelerate the decarbonization of the airlines. First, there are potential leakages in any plan to induce the retirement of fuel-guzzling aircraft: the guzzlers might find a home in countries with less stringent emissions regulation, with the result that only the geographical origin of their emissions would change – a meaningless distinction when considering climate impact.

Add to that reality the difficulty of regulating the fuel efficiency of foreign-registered aircraft flying into U.S. airports, since harmonizing regulations generally requires bilateral negotiation. This is no small matter: some 35 foreign airlines (and counting) fly to Chi-cago’s O’Hare Airport, 67 to JFK in New York and 58 to Los Angeles International – each with multiple aircraft of varying ages and configurations.

The second issue is that airlines operate fleets of aircraft creating unique costs that are different from those of personal operators of transportation equipment. Unlike the family SUV, airlines operate over geographically vast networks. Moreover, fleets cannot easily be replaced in one batch, and airlines work hard to minimize the number of aircraft types and sizes they fly. For, unlike personal cars, where the replacement of, say, a Jeep with a Tesla requires little to no instruction for the driver and no new government license, the replacement of one aircraft type with another normally requires expensive training and certification for both pilots and flight attendants.

Moreover, airlines typically do their own training with aircraft-specific ground simulators, do their own maintenance with aircraft-specific trained mechanics and maintain type-specific inventories of spare parts and servicing equipment – much of which would need to be replaced as one aircraft type is replaced by another. Thus, policies that are successful with household transport may not necessarily succeed with airliners. Our challenge, then, is to demonstrate that a cash-for-clunkers approach could generate substantial emissions reductions at an acceptable cost – and without drawing the ire of the powerful commercial aviation lobby that sometimes includes aircraft makers and airport authorities as well as the airlines.

But there is some room here for maneuver. Consider two nearly identical 737-300 aircraft that were operated by Southwest Airlines, having been delivered new from the Boeing factory in 1994. Over the next quarter-century, later-generation, more efficient 737s became available, as did competing aircraft with lower carbon emissions from Airbus. Southwest retired these two aircraft at 24 and 25 years, respectively. One was broken up for parts to replenish the inventory for the 737-300 aircraft remaining in the airline’s fleet. The other was sold, and as of 2024, was flying commercially in Peru and, of course, continuing to emit 1994-vintage aircraft emissions.

That second aircraft was apparently not valued as a source of parts for Southwest, and therefore its scrap value was below the resale value of the aircraft. A sufficiently lucrative cash-for-clunkers program would have given Southwest an attractive alternative to sale, preventing the ongoing use by a foreign purchaser – or for that matter, a domestic carrier too short on cash to buy new. Such scrappage would reduce carbon emissions without significant disruption of the fleet rollover decisions of airlines.

But what cash incentives would be needed to selectively cut scrap-worthy planes from the fleet? The carbon emissions of a plane depend critically on its vintage and its usage; more flights and more miles in the air will result in more emissions. In addition, factors such as airport taxi times, temperature and airport elevation affect fuel burn and therefore emissions.

Our analysis is not carried out at that granular a level, but those factors could be considered for targeted application of airline decarbonization policies. A quick-and-dirty calculation is pretty straightforward, though: Using average fuel burn from airline filings, we estimate that replacing the 737-300 aircraft with 737-700s that perform roughly equally would reduce carbon emissions by 14 percent.

As with the original cash-for-clunkers program, one objective would be to minimize scrappage subsidies for aircraft already destined for the boneyard. Here’s how we approached the question.

To analyze the government payment needed to change the plane owner’s decision from sell to scrap requires an estimate of the unobserved scrap value. Using aircraft retirement data over the 2015-19 period for the six largest U.S. carriers, along with market-value data from AVITAS BlueBooks, we carried out a statistical regression analysis to estimate the scrap value of the individual aging aircraft. We also estimated the probability of scrappage for each retired plane. For any aircraft where the probability of scrappage was below 50 percent (which implies they were more likely than not to be kept in service), we calculated the implied scrap value from our model and subtracted it from the market value as a secondhand plane. That difference is the payment required to induce the airline to scrap the plane, which in turn equals the cost to the government.

The forgone emissions from scrappage equals the difference between the carbon emissions of the old plane if it had stayed in service minus the lesser emissions of the new aircraft operating in its place. The cost per metric ton of forgone emissions is the scrappage payment divided by forgone emissions. If this cost is low compared to the social cost of carbon emissions, then the cash-for-clunkers program looks attractive. We used a conservative current social cost of $51 per metric ton in our evaluations, which are described below.

Of the 591 planes that were retired from the fleets of the six major airlines in the U.S. (American, United, Delta, Southwest, Alaska and JetBlue) from 1991 to 2019, 65 had an estimated probability of scrappage below 50 percent. We focus on these aircraft – the ones that some other airline found economical to keep in the air.

• For the Boeing 737-400, the financial inducement needed to make it worthwhile to scrap one was $1.3 million, and the cost per ton of forgone emissions was $18.22.

• For the Boeing 747-400, the inducement needed to scrap one would have been $3 million, and the cost per ton of forgone emissions was $8.97.

• For the Boeing 757-200 (first in service 40 years ago), the necessary scrap incentive was a mere $0.9 million per plane, and the cost per ton of forgone emissions was $2.09.

• For the Boeing 767-300ER, the scrappage inducement would have been $2.3 million, and the cost per ton of forgone emissions was $10.69.

• For the Airbus 320-200, the last of the plane types we covered, the scrappage inducement was $7.3 million, and the cost per ton of forgone emissions was $20.61.

The striking fact about these numbers is that, for each plane type, the cost per ton of forgone emissions under a cash-for-clunkers program is far less than the conservatively
estimated $51 value for the social cost of carbon emissions. The cost is even smaller than the $190 cost per ton update recently proposed by the EPA. So it looks like the scrappage payments under a cash-for-clunkers program would be a great deal for society.

Were the program enlarged to accelerate the scrappage of all vintage planes rather than just targeting the ones whose retirements are already planned, the amount of carbon emissions avoided would be greater. For such a program to be successful, though, it would have to be coordinated with Boeing and Airbus to ensure that a sufficient supply of emissions-miserly aircraft would be available to replace the clunkers – not a certainty with Boeing undergoing a major restructuring after many safety mishaps. Equally important, there would need to be an additional financial inducement for airlines to scrap planes with greater value in commercial fleets. Such a regulatory approach has been implemented in the EU for domestic flights (which are covered by the EU’s Emission Trading System), though it is not clear yet if this will yield significant carbon-reduction benefits.

The critical challenge to such a program would be to create a widely accepted means for estimating the difference between market value and scrap value for each aircraft. While not difficult to calculate using our methodology, once the government began the program and reduced the supply of aircraft in the used market, the price of used aircraft would increase. Further, the scrap value of planes (some of which are used for parts) would be affected by the additional parts that would be on the market with a larger number of aircraft being scrapped.

So far we’ve not touched on the secondary impacts of a cash-for-clunkers program. One such impact is that airlines would have to accelerate purchases of new aircraft. In a hypothetical world of highly efficient capital markets, this would not be a problem as long as the new planes delivered both the service characteristics and fuel efficiency they promised. In our world, though, cash-strapped airlines – notably the smaller, low-frills carriers that provide the competition on many routes – would be forced to shrink. Moreover, the pressure to reduce service would be even greater in less developed countries, where airline service is often subsidized to sustain its viability.

* * *

There are really two big questions on the table. Should it happen – that is, are the social benefits of a carefully targeted aircraft scrappage program likely to exceed the social costs? The benefits to the world as a whole would certainly meet a benefit-cost test. It is less clear that the benefits to Americans would exceed the costs to Americans since much of the benefits of a purely American initiative would be enjoyed elsewhere. But in recent years, most defenders of climate programs have avoided making such distinctions since a global climate effort demands the participation – and leadership – of the United States. Moreover, scrappage programs could probably be coordinated with parallel programs in other afflu-ent countries, reducing the magnitude of the potential free-rider problem.

Aircraft are not a major source of global climate emissions. But they are a highly visible source, and initiatives to limit the damage they do may well make it easier to achieve global consensus on more significant carbon-reducing efforts. Consider, too, that we haven’t included the potential benefits from the reduction of local pollutants – not a small matter since the pollutants arising from the combustion of fossil fuels do disproportionate health damage near airports.

“Should” is the first test. But there is a second: would cash-for-clunkers aircraft gain the support enjoyed by the automobile program? While the political viability of automobile cash-for-clunkers was ensured because consumers received the government cash directly, taxpayers may object to making payments to the airlines to finance climate policy. The program (and the appropriations to pay for it) probably couldn’t make it through Congress without support from the airlines – support that is far from assured unless the carriers believed that the alternative was some sort of negative incentive to retire the fuel-guzzlers – a carbon tax or a mandated retirement of old planes without compensation.

Another factor is the possible targeting of particular aircraft types, whose ownership may be concentrated among specific airlines. An example from the past would be MD-80 aircraft and their variants, which were disproportionately operated by American Airlines. American’s fleet peaked at 360 MD-80s, 30 percent of all the MD-80s sold worldwide. However, cars and planes are different: while pickup-truck owners may have rebelled if clunkers payments had gone to owners of Ford F-150s but not to owners of Chevrolet Silverados, targeting particular plane models would presumably be less controversial.

The objection to clunker redux with the most traction might well be the pressure to reduce large, chronic government budget deficits – or at least not to add to them with another subsidy program. If deficits float to the top of the political agenda, supporters of climate initiatives may be forced to triage their voluminous portfolio of commitments that range from accelerating the use of electric vehicles to developing carbon capture technology to making green hydrogen cost-effective. In that environment, financing accelerated aircraft retirement would seem a long shot.