SMRs and AMRs

Thursday, May 15, 2008

$3.75 per gallon? That's cheap: Try $15 per gallon

From Plan B 3.0 by Lester Brown, the Earth Policy Institute:

One of the best examples of this massive market failure can be seen in the United States, where the gasoline pump price in mid-2007 was $3 per gallon [now $3.75 per gallon]. But this price reflects only the cost of discovering the oil, pumping it to the surface, refining it into gasoline, and delivering the gas to service stations. It overlooks the costs of climate change as well as the costs of tax subsidies to the oil industry (such as the oil depletion allowance), the burgeoning military costs of protecting access to oil in the politically unstable Middle East, and the health care costs for treating respiratory illnesses from breathing polluted air.

Based on a study by the International Center for Technology Assessment, these costs now total nearly $12 per gallon ($3.17 per liter) of gasoline burned in the United States. If these were added to the $3 cost of the gasoline itself, motorists would pay $15 a gallon for gas at the pump. In reality, burning gasoline is very costly, but the market tells us it is cheap, thus grossly distorting the structure of the economy. The challenge facing governments is to restructure tax systems by systematically incorporating indirect costs as a tax to make sure the price of products reflects their full costs to society and by offsetting this with a reduction in income taxes.

[Sources: International Center for Technology Assessment (ICTA), The Real Cost of Gasoline: An Analysis of the Hidden External Costs Consumers Pay to Fuel Their Automobiles (Washington, DC: 1998); ICTA, Gasoline Cost Externalities Associated with Global Climate Change: An Update to CTA’s Real Price of Gasoline Report (Washington, DC: September 2004); ICTA, Gasoline Cost Externalities: Security and Protection Services: An Update to CTA’s Real Price of Gasoline Report (Washington, DC: January 2005); Terry Tamminen, Lives Per Gallon: The True Cost of Our Oil Addiction (Washington, DC: Island Press, 2006), p. 60; adjusted to 2007 prices with Bureau of Economic Analysis, “Table 3–Price Indices for Gross Domestic Product and Gross Domestic Purchases,” GDP and Other Major Series, 1929–2007 (Washington, DC: August 2007); DOE, op. cit. note 16.]

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