How Much Does a Gallon of Gas
Friends Committee for National
Legislation, Washington Newsletter
The price we pay for gasoline at the pump,
although it seems high today at $3-plus per gallon, doesn't begin
to cover the full social cost of our oil consumption.
Burning petroleum fuel fouls the air,
increasing illness and pre-mature death for hundreds of thousands
of people due to respiratory ailments. The greenhouse gases that
are emitted contribute significantly to global climate change,
the costs of which will be borne by future generations. Arguably,
the root causes of the wars in Iraq and Afghanistan can be traced
to U.S. and global oil dependence.
None of these extra costs are included
in the price we pay at the pump. Thus, the full costs of petroleum
consumption are not necessarily paid by the people who consume
it. Instead, others pay the extra costs-those who are most susceptible
to respiratory ailments, the victims of oil wars, taxpayers, and
So, how much do these "externalities"
cost? Estimates vary widely-from zero to more than a trillion
dollars per year. Loren Cobb has provided a helpful analysis ("Oil
Addiction: The External Costs of Petroleum Use," The Quaker
Economist #142, http://tqe.quaker.org). Cobb estimates:
* Health costs of air pollution from petroleum
use (estimated using damage function method): $300 billion per
* Government spending on roadway construction,
maintenance, and research (beyond those funded through fuel taxes,
tolls, and registration fees): $75 billion per year, and
* Net economic impact of petroleum-related
global warming (excluding discounted future effects): $25 billion
To this analysis, we at FCNL would add:
* Approximate military cost of securing
the flow of Persian Gulf oil (National Defense Council Foundation):
$49 billion per year.
* Approximate military cost of the wars
in Iraq and Afghanistan: $100 billion per year.
By this estimate, the total annual costs
that are not included in the price of gasoline (and other petroleum-based
products that we use) are roughly $550 billion. According to the
Department of Energy, in 2005, the U.S. consumed about 317 billion
gallons of petroleum (20.6 million barrels per day). This means
that for every gallon of gas (or diesel, jet fuel, heating oil,
plastic, etc.) consumed, society paid an extra $1.74 per gallon.
Congress should consider shifting these
costs to petroleum consumers through increased taxes on petroleum
products, phased in over time, while providing offsets for low-income
households during an initial period of adjustment.
An additional $1.74 tax on oil could bring
about a number of social benefits. Consumers and industry would
conserve and invest in energy efficiency. They would demand and
develop more fuel efficient vehicles and renewable fuels. More
people would seek places to live where they would not need to
own a car. Demand for public and alternative transportation would
increase. Urban air quality would improve. Greenhouse gas emissions
would decline. The U.S. would save the hundreds of billions it
now spends importing oil. U.S. foreign policies would no longer
be driven by the imperatives of oil dependence. Military spending
could be cut. And that's just for starters!