clunkerUpdated 3/23: See below.

These days, there’s green, and then there’s green. In a time of both economic and environmental challenges, one would hope that the two might go hand-in-hand, but as we’ve seen in the past when push comes to shove, pocketbook green often carries the day.

So it seems with the Cash-for-Clunkers bill now circulating Washington, D.C. The idea behind the bill has always been simple: provide the public with a financial incentive to replace older, gas-guzzling and pollution-spewing vehicles with new, more fuel efficient models.

What’s for environmentalists not to like? Nothing but a few pesky details having to do with how much of a mileage increase the new vehicle has to produce to qualify for the program.

Under the House version of the bill proposed by Rep. Betty Sutton (D-OH),  you can get $3,500-4,500 back for a vehicle that gets only a few miles per gallon more than the old vehicle you’re trading. Good for you, great for the manufacturers and dealers who have a backlog of inventory; for the environment, not so much.

Let’s say you’re driving a thirsty, old light-duty truck, mini-van or SUV that gets a combined 18 mpg or less. Trade it in on a new vehicle that gets only 2 mpg more, and you qualify for a $3,500 voucher.  If that’s not enough, choose a vehicle that gets only 6 mpg more than what you’re trading, and you’ll qualify for $4,500.

For passenger cars, the mileage increases required for eligibility are a bit higher (a 4 mpg gain earns $3,500, 10 mpg earns $4,500).  But for large light-duty trucks, the qualifications are even lower than for regular light-duty trucks. In other words, the less efficient type of vehicle you trade, the less stringent the requirements.

A Senate version, sponored by Sen. Diane Feinstein (D-CA) and others, works similarly but requires larger increases in fuel efficiency. According to the Washington Independent, the Senate version also “ups the fuel-efficiency floors in each vehicle category to coincide with the 2008 average economy in each vehicle class. As a result, the lawmakers estimate their bill would reduce greenhouse gas emissions and gasoline consumption per vehicle by 32 percent each year relative to the House bill.”

Of the two versions, the less eco-friendly House bill appears to have the momentum.

To their credit, both bills require that the vehicle being traded has to have been insured by the same owner for one year before the trade. So, if you were thinking of buying an old clunker just to flip it, you’re out of luck.

Two bright spots. First, there’s nothing to say new car buyers can’t exceed the minimum mileage increase when trading up. Recent increases in gas prices expected to continue through the summer should provide an added incentive to do just that.

Secondly, that $3,500-$4,500 savings will be offset rather quickly by depreciation on a new vehicle, so purchasing a late-model, high-mileage, used vehicle may be more cost effective in the long run.

Update (3/23) The US Senate passed the Sutton (House) version of the bill creating the Car Allowance Rebate System (CARS), which now awaits the president’s signature.

Update II (3/23) The National Highway Traffic Safety Administration (NHTSA) has launched cars.gov to help consumers understand the CARS program. Expect the site to be updated as details continue to emerge.