Friday, 6 April 2012

Emissions and used cars

The National Business Review's print edition takes on the effects of the recent import restrictions on Japanese used cars.

I'm agnostic on job losses or the magnitude of any price hike consequent to the regulation change; I've done no work on it. I'd expect employment effects to be transitory rather than permanent: in a few years, the 2005 bar will become non-binding; even if it didn't, we'd get a lull in used car sales only until people get into the new and longer car replacement cycle, at which point it would level back up a bit.

I'd count the primary costs of the legislation as being the burden on consumers who are forced away from what would have been their optimal choice rather than employment effects. I doubt we'll see any environmental benefit from the regulatory change to offset this loss; we could even see a worsening in quality. As I wrote last year:
Green MP Gareth Hughes lauds the changes, saying it will help save lives by reducing emissions. I'm really not sure that's the case. It would be surprising if the price of used cars did not increase consequent to the change - knocking out a substantial proportion of the general supply flow does that. While the imports are a small fraction of the overall fleet, they're a large proportion of vehicles entering the fleet; prices are set on that margin. If prices go up, folks will hold onto their cars for longer rather than replacing them. Some will certainly shift into buying a 2005 or newer import, but others will hang onto their older car for longer. The net effect on particulate emissions is then at best ambiguous.
The NBR cites me (accurately, on emailed query, though they're the one who decided I'm an expert):
Canterbury University economist Eric Crampton, an expert on public policy who has also blogged on car imports, said it was basic economics that when supplies of something were restricted, the price would increase.
He too believes the government might suffer from the law of unintended consequences if this environmental policy meant drivers kept their dirtier cars for longer. Such unintended consequences were "rife in environmental policy," Dr Crampton said.
But, one of the copyeditors puts my name on a boldfaced quote that isn't mine; the body of the text attributes it to "Dog and Lemon Guide" editor Clive Matthew-Wilson, who says
"Ten per cent of New Zealand cars have no WOF or registration and making it harder for people to upgrade theri vehicles will lead to more unsafe cars and cars belching out pollution, which is the opposite to what the legislation was intended to achieve."
I don't particularly disagree, though I have no knowledge of compliance rates on WOF or on registration, and while I'd bet on that pollution goes up a bit with the rule change, I wouldn't say it's necessarily the case. It's just a likely consequence.

Gerry Brownlee cites Ministry of Transport data showing no correlation between old car scrap rates and vehicle imports as saying something useful about the likely effects of import restrictions. The same line was run by a commenter complaining of my prior analysis.

There are a few problems with the lines MoT fed to Brownlee.

First, I'm not sure that we've ever before put in a policy barring the import of vehicles that previously made up such a large proportion of the incoming used car cohort; whatever correlations between scrap rates and import rates may have held previously might not be reliable this far out of sample. The 2010 data shows we then imported a bit over 76,000 used cars manufactured 2004 or earlier and almost 92,000 new and used vehicles made since 2005. The 2011 stats aren't yet out, but if we just advance the calendar by two years on the 2010 data, we'd get 47,000 used imports manufactured 2004 or earlier and 120,000 made since 2005; about 28% of what we might have ballparked as an incoming cohort for this year are now barred entry.

Second, so long as some people are moving from single car to two-car households, we could easily get a decrease in the average fleet age weighted by driven kilometres even if there's no correlation with scrap rates; when you get a relatively newer car, your relatively older car goes into "second vehicle" use: almost-scrap. The scrap rates don't tell us much about this if we're not in steady state where every family wanting two cars has two cars.

Finally, the scrap rate is less instructive than changes in the curvature of the scrap-age profile. In 2010, used NZ vehicles hit peak scrap rates for model years 1986-1987; 18% of vehicles of those model years that were registered at the start of the year were no longer in the fleet at the end of the year. If everything's working properly, that peak scrap age should be moving forward in time a bit faster than calendar years advance if we're getting relatively richer. It'll be interesting to see what the 2012 data winds up showing.

Prior posts on the used car regs:

- Average fleet age increasing
- Proportion of vehicle imports that would be barred under the 2005 limit
- A lengthy discussion through the comments thread on this one with a fan of the regulations.

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