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The Real Price of Gasoline

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, results 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

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 billion.

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 chunk 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
worlds’ 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. Few people
will dispute that internal combustion engines contribute
heavily to localized air pollution. And 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 reckoned by researchers in
the field of transportation cost analysis, although the
actual total is surely much higher and may exceed $600
billion. When you consider 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 year.

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, or consider progressive residential and urban
development strategies.
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.


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