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How should we understand the cost of a gallon of gasoline?

This is a very serious question with a myriad of layers and implications.

The price of gasoline, at the pump, is the most prominent indicator of energy costs for a very large share of humanity. Whether driving a car or taking a bus or even walking on a street, the ‘arm and a leg’ brightly lit sign that sparks a “WTF” moment at some high figure is the most immediate interaction that people have with the price of energy.

However outraged Americans might be at $4.49.9 per gallon gasoline, that price doesn’t come close to reflecting the true costs of fuel. Not included are health costs (cancers, asthma, otherwise), the subsidies for systems using energy (such as tax money spent on roads, highway maintenance, police, parking, …), opportunity costs (what better uses for the land?), security (such as overseas military operations), and environmental damage — such as that pesky little issue of Climate Change.  Thus, Americans most prominent and most emotional engagement with energy prices sends false signals that misleads as to the true implications of burning a gallon of gasoline.

Recognizing this, the Center for Investigative Reporting put together this video to follow a gallon of gasoline to illuminate the different cost streams being left out of the price on the sign.

This California Watch article explores some of these costs such as oil spills:

Some early estimates put the price of cleaning up the massive spill in the Gulf of Mexico at up to $20 billion. Every year, states spend more than $600 million to clean up leaking underground gasoline storage tanks.

Hmmm … at roughly 300 million barrels per year burned for light vehicle transportation, that is about $2 per barrel just for cleaning up underground gasoline storage tanks or perhaps five cents per gallon of gasoline sold not represented in the price on the pump.  And, well, that is a shadow of the implications of, for example, carbon emissions where a reasonable Social Cost of Carbon would represents easily 50 or more cents per gallon not on the price at the pump.  And, how many $1s, 10s, or $100s of billions each year of U.S. military costs results from America’s oil addiction and the need to maintain ‘stability’ in oil producing regions?

How about another angle?  As per the Institute for the Analysis of Global Security (the ‘real cost of oil’)

Our dependency on oil from countries that are either politically unstable or at odds with the U.S. subjects the American economy to occasional supply disruptions, price hikes, and loss of wealth, which, according to a study commissioned by the U.S. Department of Energy, have cost us more than $7 trillion present value dollars over the last 30 years. That is more than the cumulative cost of all of the wars fought by the U.S. since the Revolutionary War. The transfer of wealth to oil-producing countries – $1.16 trillion over the past thirty years – significantly increased our trade deficit. The Department of Energy estimates that each $1 billion of trade deficit costs America 27,000 jobs. Oil imports account for almost one-third of the total U.S. deficit and, hence, are a major contributor to unemployment.

No matter how you count the figures, any honest effort will show that the real cost of our oil addiction is orders of magnitude greater than the cost of the cure.

In any event, as the video concludes:

What is the true price of gas?  It’s a lot more than we pay at the pump.