Last week, the price of crude oil jumped to $113 a barrel, and suspiciously soon afterward, the national average for regular unleaded gasoline leaped over the $4 a gallon mark. Lost production in Libya was blamed for the gas price hike, yet even at $4 per gallon, it's really a bargain. Before you start sending me hate e-mail, let me explain. Even at $4, we are not paying the real cost of gasoline. Our federal government subsidizes the oil industry with numerous tax breaks, price protections, and research and development funding that totals billions of dollars every year. These subsidies help keep domestic oil companies competitive with international producers, and keep gas relatively cheap at the pump.
In other countries, like Bosnia, you would pay $10.86 for a gallon of gas because there are fewer government subsidies. Paris is at $6.52, Berlin at $6.42, and it's $7 in Amsterdam.
That $4 we pay at the pump can be divided into four main categories: taxes, refining, marketing/distribution and the price of crude (according to a special report by CNN Money).
Crude oil is the most expensive part of a gallon of gas, costing more than $2. This money goes straight to big producers of crude or to national oil companies controlled by countries like Saudi Arabia, Mexico or Venezuela.
The federal government takes about 20 cents from each gallon, on top of the state's tax, which varies greatly but averages about 22 cents a gallon. Most of this money is used to build and maintain roads (which is why removing the gas tax is a bad idea). Refineries eat about a quarter-dollar for each gallon. Some refineries you may recognize are Valero, Sunoco, ExxonMobil, Chevron and ConocoPhillips.
Marketing and distribution can eat up the rest of the $4 price tag, with your local gas station getting only about 10 cents per gallon and the transporting of the gas to your gas station eating up another quarter, and so on.
But the price we pay at the pump is only the tip of the iceberg of the real cost of gas. Many expenses related to using gas are externalized, meaning we either pay for them through our taxes or leave them as a balance due for future generations. These "hidden costs" include military patrols of oil shipping lanes and presence in oil producing countries; air pollution from auto exhaust; carbon dioxide levels in the atmosphere; environmental devastation caused by drilling, pipelines and oil spills; and economic damage caused by importing foreign oil.
If all these hidden costs were actually tallied into the price of gas, we would pay well over $5 per gallon, according to the National Defense Council Foundation. The economic penalties of America's oil dependence total $297.2 billion to $304.9 billion annually, making the true cost of a fill-up more than $100.
"Lives Per Gallon" author Terry Tamminen estimates that the true cost is actually much higher. Tamminen states that "Americans subsidize the oil and auto industry to the tune of about $6 or more for every gallon of gasoline sold, making the real price at the pump $10 per gallon."
Tamminen also points out that it is difficult for "alternative fuels to compete against such massive subsidies, until mass-production of alternative fuels (and vehicles that use them) can bring the price down. Such incentives can also be considered an economic stimulus package, because those investments create jobs in America instead of sending more than $650,000 every minute to foreign countries for our addiction to oil (based on $75/barrel for oil)."
A side benefit of climbing gas prices is an increased awareness of the need to use gas more efficiently. A recent survey showed that American consumers list fuel economy as the most important factor when they purchase a new car. (The number of cup holders was most important previously.) If we had to pay the true cost of fuel at the pump, we would all ride bicycles and drive electric cars.
Shawn Dell Joyce is an award-winning columnist and founder of the Wallkill River School in Orange County, N.Y. You can contact her at Shawn@ShawnDellJoyce.com.