The real price of gas: $15 a gallon?

M A Jones jones118 at
Thu May 11 02:11:55 MDT 2000

[of course, if you paid the proper price for the stuff you'd be lucky to be
even driving a Lada... Mark]

The Real Price Of Gas

Executive Summary

This report by the International Center for Technology Assessment (CTA)
identifies and quantifies the many external costs of using motor vehicles
and the internal combustion engine that are not reflected in the retail
price Americans pay for gasoline. These are costs that consumers pay
indirectly by way of increased taxes, insurance costs, and retail prices in
other sectors.

The report divides the external costs of gasoline usage into five primary
areas: (1) Tax Subsidization of the Oil Industry; (2) Government Program
Subsidies; (3) Protection Costs Involved in Oil Shipment and Motor Vehicle
Services; (4) Environmental, Health, and Social Costs of Gasoline Usage; and
(5) Other Important Externalities of Motor Vehicle Use. Together, these
external costs total $558.7 billion to $1.69 trillion per year, which, when
added to the retail price of gasoline, result in a per gallon price of $5.60
to $15.14.


The federal government provides the oil industry with numerous tax breaks
designed to ensure that domestic companies can compete with international
producers and that gasoline remains cheap for American consumers. Federal
tax breaks that directly benefit oil companies include: the Percentage
Depletion Allowance (a subsidy of $784 million to $1 billion per year), the
Nonconventional Fuel Production Credit ($769 to $900 million), immediate
expensing of exploration and development costs ($200 to $255 million), the
Enhanced Oil Recovery Credit ($26.3 to $100 million), foreign tax credits
($1.11 to $3.4 billion), foreign income deferrals ($183 to $318 million),
and accelerated depreciation allowances ($1.0 to $4.5 billion).

Tax subsidies do not end at the federal level. The fact that most state
income taxes are based on oil firms' deflated federal tax bill results in
undertaxation of $125 to $323 million per year. Many states also impose fuel
taxes that are lower than regular sales taxes, amounting to a subsidy of
$4.8 billion per year to gasoline retailers and users. New rules under the
Taxpayer Relief Act of 1997 are likely to provide the petroleum industry
with additional tax subsidies of $2.07 billion per year. In total, annual
tax breaks that support gasoline production and use amount to $9.1 to $17.8


Government support of US petroleum producers does not end with tax breaks.
Program subsidies that support the extraction, production, and use of
petroleum and petroleum fuel products total $38 to $114.6 billion each year.
The largest portion of this total is federal, state, and local governments'
$36 to $112 billion worth of spending on the transportation infrastructure,
such as the construction, maintenance, and repair of roads and bridges.
Other program subsidies include funding of research and development ($200 to
$220 million), export financing subsidies ($308.5 to $311.9 million),
support from the Army Corps of Engineers ($253.2 to $270 million), the
Department of Interior's Oil Resources Management Programs ($97 to $227
million), and government expenditures on regulatory oversight, pollution
cleanup, and liability costs ($1.1 to $1.6 billion).


Beyond program subsidies, governments, and thus taxpayers, subsidize a large
portion of the protection services required by petroleum producers and
users. Foremost among these is the cost of military protection for oil-rich
regions of the world. US Defense Department spending allocated to safeguard
the world's petroleum resources total some $55 to $96.3 billion per year.
The Strategic Petroleum Reserve, a federal government entity designed to
supplement regular oil supplies in the event of disruptions due to military
conflict or natural disaster, costs taxpayers an additional $5.7 billion per
year. The Coast Guard and the Department of Transportation's Maritime
Administration provide other protection services totaling $566.3 million per
year. Of course, local and state governments also provide protection
services for oil industry companies and gasoline users. These externalized
police, fire, and emergency response expenditures add up to $27.2 to $38.2
billion annually.


Environmental, health, and social costs represent the largest portion of the
externalized price Americans pay for their gasoline reliance. These expenses
total some $231.7 to $942.9 billion every year. The internal combustion
engine contributes heavily to localized air pollution. While the amount of
damage that automobile fumes cause is certainly very high, the total dollar
value is rather difficult to quantify. Approximately $39 billion per year is
the lowest minimum estimate made by researchers in the field of
transportation cost analysis, although the actual total is surely much
higher and may exceed $600 billion.

Considering that researchers have conclusively linked auto pollution to
increased health problems and mortality, the CTA report's estimate of $29.3
to $542.4 billion for the annual uncompensated health costs associated with
auto emissions may not adequately reflect the value of lost or diminished
human life. Other costs associated with localized air pollution attributable
to gasoline-powered automobiles include decreased agricultural yields ($2.1
to $4.2 billion), reduced visibility ($6.1 to $44.5 billion), and damage to
buildings and materials ($1.2 to $9.6 billion). Global warming ($3 to $27.5
billion), water pollution ($8.4 to $36.8 billion), noise pollution ($6 to
$12 billion), and improper disposal of batteries, tires, engine fluids, and
junked cars ($4.4 billion) also add to the environmental consequences
wrought by automobiles.

Some of the costs associated with the real price of gasoline go beyond the
effects of acquiring and burning fuel to reflect social conditions partially
or wholly created by the automobile's preeminence in the culture of the
United States. Chief among these conditions is the growth of urban sprawl.
While monetizing the impact of sprawl may prove a challenging endeavor,
several researchers have done significant work on the subject. The costs of
sprawl include: additional environmental degradation (up to $58.4 billion),
aesthetic degradation of cultural sites (up to $11.7 billion), social
deterioration (up to $58.4 billion), additional municipal costs (up to $53.8
billion), additional transportation costs (up to $145 billion), and the
barrier effect ($11.7 to $23.4 billion). Because assessment of the costs of
sprawl is somewhat subjective and because study of the topic remains in a
nascent stage, the CTA report follows the lead of other researchers in field
of transportation cost analysis and reduces the total of the potential cost
of sprawl by 25% to 50% to arrive at a total of $163.7 to $245.5 billion per


Finally, external costs not included in the first four categories amount to
$191.4 to $474.1 billion per year. These include: travel delays due to road
congestion ($46.5 to $174.6 billion), uncompensated damages caused by car
accidents ($18.3 to $77.2 billion), subsidized parking ($108.7 to $199.3
billion), and insurance losses due to automobile-related climate change
($12.9 billion). The additional cost of $5.0 to $10.1 billion associated
with US dependence on imported oil could rise substantially, totaling $7.0
to $36.8 billion, in the event of a sudden price increase for crude oil.


The ultimate result of the externalization of such a large portion of the
real price of gasoline is that consumers have no idea how much fueling their
cars actually costs them. The majority of people paying just over $1 for a
gallon of gasoline at the pump has no idea that through increased taxes,
excessive insurance premiums, and inflated prices in other retail sectors
that that same gallon of fuel is actually costing them between $5.60 and
$15.14. When the price of gasoline is so drastically underestimated in the
minds of drivers, it becomes difficult if not impossible to convince them to
change their driving habits, accept alternative fuel vehicles, support mass
transit, or consider progressive residential and urban development

The first step toward getting the public to recognize the damage caused by
the United States' gasoline dependance is getting the public to recognize
how much they are paying for this damage. The best way, in turn, to
accomplish this goal is to eliminate government tax subsidies, program
subsidies, and protection subsidies for petroleum companies and users, and
to internalize the external environmental, health, and social costs
associated with gasoline use. This would mean that consumers would see the
entire cost of burning gasoline reflected in the price they pay at the pump.
Drivers faced with the cost of their gasoline usage up front may have a more
difficult time ignoring the harmful effects that their addiction to
automobiles and the internal combustion engine have on national security,
the environment, their health, and their quality of life.

Mark Jones

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