Fiscal policy and investments: scrapping-and-recycling the old and polluting vehicle fleet

A vehicle scrapping-and-recycling program must be carefully designed considering fiscal implications, income levels, potential revenue streams (from recycling scrapped metals), financial sustainability, and anticipated environmental and economic benefits. If not properly targeted, it could be a very regressive and expensive policy that benefits the wealthier population who can afford to purchase new vehicles and brings about little environmental benefits.^{CITATION Gla08 \n \t \l 1033} Moreover, in the case of Georgia, where domestic automobile industry is non-existent, vehicle scrapping-and-recycling programs could merely substitute fuel imports with vehicle imports, which is undesirable given that one of the key policy objectives is to balance the current account through reduction in fuel imports.

Table 3: Comparing Vehicle Scrapping Programs

Box 2. Cairo’s Taxi Scrapping-and-recycling Project Project Overview. In April 2009, the Egyptian Ministry of Finance, with support from the Prime Minister, initiated the Vehicle Scrapping-and-recycling Program for the Greater Cairo Region (GCR). Under this initial phase, a taxi replacement and recycling program was launched on a voluntary basis; private taxi owners receive financial and other incentives to surrender their old vehicles for new, more fuel-efficient models and the old vehicles are scrapped and recycled. The program was launched to support enforcement of Traffic Law 121, effective June 9, 2008, which targets improvements in air quality and reduction of greenhouse gases (GHG) associated with Egypt’s aging fleet of taxis, microbuses, minibuses, and buses. Initially, the program focused on replacing taxis in the GCR; it was a collaborative effort between government and the private sector that offered an attractive financial package to taxi owners with vehicles that were more than 20 years old. The package includes a 25-30 percent price reduction for a new replacement vehicle, €2,500 in subsidies and tax waivers, discounted loan terms and insurance agreements, and other incentives. Total program cost was estimated at about US$620.24 million, depending on the number of participants, share of each model, etc. The program will remain active for 28 years. During the first phase, it will replace about 45,000-50,000 taxis in the GCR. Then, in later phases, pending approvals, taxis and other mass transport vehicles in other regions would be replaced. The first phase will reduce emissions by an estimated 1.3-2.3 million tons CO2e over 10 years. Carbon financing will support the project, plus help underwrite development of a recycling facility for the scrapped vehicles. As of 2009, some 17,000 taxis had been replaced, reducing emissions by 57,233 tons CO2e and energy use by 29 percent. Distribution of Model Years of Registered Taxis in the Greater Cairo Region