How Much Should Gas Cost

We were having an argument some time ago about the “proper” price of gas: that is, how much an efficiently priced gallon of gasoline would cost, including all externalities. I just read an article by Bradley Rosser that linked to an article by Ezra Klein that referenced a study that gave a pretty satisfying answer: $4.37 per gallon. Money quote from Rosser:

At the time of the report, the average price of gas in the US was $2.72 per gallon, but after adding in (in order of estimated costs), 52 cents for traffic congestion, 41 cents for auto accidents, 30 cents for energy security, 20 cents for climate change, 12 cents for local pollution, and 10 cents for oil dependence, this brings a supposedly more efficient prices of $4.37 per gallon.

8 Responses to How Much Should Gas Cost

  1. joeyglick says:

    I think these numbers are probably bullshit.

    A different study had very different numbers.

    “economists Ian Parry and Kenneth Small considers only the externalities associated with gasoline consumption (Parry and Small, 2005, Table 1). Their review of the literature concludes that the optimal second-best gasoline tax in the United States would be $1.01 per gallon.17 That $1.01 per gallon figure is broken down as follows: 16 cents to pay for cost of conventional pollution; 5 cents to pay for the costs of greenhouse gas emissions; 30 cents to pay for the costs associated with traffic congestion; and 24 cents to pay for costs associated with traffic accidents.”

    A few notes. I don’t understand why gasoline taxes should pay for “costs associated with traffic accidents.” I also don’t understand why traffic accidents, in your proposal, cost 4 times the cost of oil dependence, or twice that of climate change. Traffic congestion, similarly, seems to miscalculate the importance of local pollution.

  2. joeyglick says:

    I wonder if the analysis takes non-direct non-monitary costs into account. I don’t know how to put a price on the 50,000 deaths each year from industrial pollution. I don’t know how to put a price on the terrorism sponsored by oil wealth.

    The Institute for the Analysis of Global Security, a washinton based think tank that tracks the impact of oil on geopolitics, explained in a paper titled “Fueling Terror,”
    “If not for the West’s oil money, most Gulf states would not have had the wealth that allowed them to invest so much in arms procurement and sponsor terrorist organizations…Most wealthy Saudis who…preach religious intolerance and hate toward the Western values have made their money from the petroleum industry or its subsidiaries.”

  3. Andrew Chesley says:

    A few things:

    1. You can’t read a study that has different numbers and conclude “Oh, this other study must be right”. For one, I’d like to see the study you just quoted from. I linked to mine and it’s only fair if you do the same.

    2. How else should we tax traffic accidents? And don’t tell me we shouldn’t tax traffic accidents, it’s clearly an externality created by driving.

    3. There are justifications for the specific numbers in the study if you are good at stats.

    4. What is a “non-direct non-monetary cost”? We put a price on human life all the time and this study does that. That’s why the additional tax includes an amount for pollution and oil dependence. The tax for oil dependence is designed to pay for the cost of oil-funded terrorism.

  4. joeyglick says:

    1. I never said mine was right. I suggested that the wide differences between your study and mine suggest that these numbers are arbitrary rather than accurate.

    2. Taxation is one way among many to correct externalities. The legal system, or insurance companies, could do this.

    3. I think that any good statistic should come with a range of options. The idea there is “one right answer” seems a refuge of scientific/cartesian certainty gone awry.

    4. I don’t understand how you can put monetary costs on human life. Just because we “do it all the time” doesn’t make it acceptable. Since the affected parties are dead, they cannot receive the benefits.

    It seems like your argument is identical to the belief that we could correct the externalities of serial killers by increasing taxes on guns. Just because an arbitrary amount of money is collected doesn’t account for the 70,000 dead Americans that had no choice but to breathe polluted air.

    Also, according to the International Center for Technology Assessment,
    “While most industries operating in dangerous parts of the world are responsible for arranging private security to protect their investments, infrastructure and personnel, the petroleum industry is able to externalize many of the cost of protection…[companies] pay only 50 cents per barrel towards security, while subsidies funded by US taxpayers cover an additional $3.70 per barrel.”

    At almost $4 a barrel in direct subsidies, I can’t imagine that your study has a solid grasp of the full magnitude of the atrocities that our oil addiction has.

  5. joeyglick says:

    Update to 4:
    Not all gasoline receives security for $4 per gallon. But, when served in pumps, all gas is equal.

    I have a new question:
    In the same way there is “organic” for food, perhaps there could be tiers of gasoline based on the ethics of the source?

  6. joeyglick says:

    also, your study is from the same authors as mine, except yours is from 2002 (updated 2004) whereas mine is from 2005.

    Their numbers radically change in just three years.

  7. Andrew Chesley says:

    We clearly agree on the pricing of gasoline. I posted this because I remembered us arguing about it, but now for whatever reason, that disagreement is gone. I am not advocating the specific numbers stated in the study that I posted, just the belief that we should price externalities into the cost of a gallon of gas.

    The only disagreement we seem to have is a common one that we can price human suffering. I’ll write about that in the next comment.

  8. Andrew Chesley says:

    We don’t price externalities so we can give that money to the people that are injured but so we can raise the cost of doing the activity to the people doing it. For all I care, we could throw the money collected by the gas tax into a rocket and hurl it into the sun. We tax gas to add a cost to the purchase of gas that is not seen when we just go to an oil well, pump oil, refine it, and put it in our cars. Because humans don’t come with a price tag, there are tons of people whose job it is to help us quantify human suffering so that we can transfer the cost of that suffering from the person suffering to the person causing the suffering.

    The idea is that we discourage the use of gasoline, thus “internalizing the externality”.

    Serial killer example: we do “tax” serial killers: we put them in jail. To me, a monetary cost and a non-monetary cost are both just costs. The reason that Pigou taxes discourage bad behavior is because we could USE THE MONEY TO BUY SOMETHING ELSE. The cost isn’t that we no longer have pretty cotton pieces of currency in our pocket, it’s that we now have less potential utility.

    Basically, you’re understanding of taxing externalities seems to be that we do it to “repay” suffering already incurred whereas the real reason we do it is to prevent future suffering. The past is the past. Let it go. Fuck sunk costs.

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