Blogs » Politcs Plus » What's the true cost of gasoline?


Tonight, president of Obama will use a portion of his scheduled 20 minutes to tell the nation that the oil spill underscores the need to end our dependence on oil but he will not be able to go into great detail because of the time limit. The senate is about 10 votes shy of the required 60 to start the energy debate; hopefully this speech gives inspiration, confidence, and assurance to the waning 10 senators... The time for action is now.

For about the last two years I have been ridiculed and told I was not sympathetic towards poor people because I think we should be paying about $4.00 a gallon for gasoline. It was only after I explained that Tom Friedman's book"Hot,Flat & Crowded" revealed that Japan kept their prices of gasoline high, raised their CAFE standards and continued making fuel efficient cars propelling their way to being number one in auto sales, then a few saw my point. Despite Japan's troubles today, the fact that a higher price at the pump creates an environment these innovators need to make the next battery that gets 200 miles per charge and conservation will be the byproduct.

Newsweek's Ezra Klein wrote an interesting article titled “How much does a gallon gas costs? Much more than you think" detailing the price of a gallon gas, in economist speak. Whereas we call the BP spill, a tragedy, the economists call it an externality, meaning a cost that is not paid by the people using the good that creates the cost. He said the cost of the spill, costs fishermen, the ecosystem, and tourism, but it won't be paid by the people who wanted oil for their cars. It will fall on taxpayers like the gulf coast residents who need a new job and the poisoned wildlife.

What's the true cost of gasoline when you factor in disruptions in the Middle East, spills, pollution, and other hidden costs? Another cost that I did not list could be managerial decisions based on wild price swings. Ian Parry, a senior feller at Resources for the Future, states that all these costs should add up to about a $1.23 a gallon and zooms up to $1.88 a gallon if global warming is a worry. The average price of gasoline is $2.72, so if Mr. Perry is correct, the price should be as high as $4.60. That's the price we should be paying, if we don't want the pollution, the devastation, or a military policy and dictating a need to secure oil resources. Experts have said that if dirty coal had to pay its true cost, we would likely stop using it. That is not the case with oil. We need it for our cars.

Years of regulation and innovation have made extracting, refining, and using oil, relatively low in cost, even after you factor in the hidden cost. We talk about the high cost of alternative fuels but that's only because oil is artificially priced too low. Yes, in comparison with oil, alternative fuels are high. Initially the smart cards, batteries, wind turbines, and other technological advances will be expensive but as more customers make use of them, the price of Going Green will be well worth it and lasting.