Sunday, June 13, 2010

What Should the Price of Gasoline Be?

In today's WaPo Business section, in "Think gas is too pricey? Think again," Ezra Klein reports on a recent study by Ian Perry of Resources for the Future that attempts to estimate the cost of all the externalities arising from the use of gasoline in vehicular transportation. 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. It is unclear if that 12 cents for local pollution was estimated before or after the BP oil spill in the Gulf of Mexico happened.

6 comments:

Peter Dorman said...

That twenty cents for climate change comes from the Obamanistas' "social cost of carbon calculation". You can find a critique of it (devastating, if I don't say so myself) at:

http://www.climatechangeecon.net/index.php?option=com_content&task=view&id=27&Itemid=28

Barkley Rosser said...

Peter,

I agree, with the figures for both local pollution and climate change way too low. OTOH, someone over at Economists View where this has been linked to argues that the auto accidents and traffic congestion figures should not be attributed to oil-based gasoline as they might happen with electric or other non-oil based cars as well.

Gar Lipow said...

I think automobiles are a great example for arguments that infrastructure is more important than price, or at least more important than gasoline or carbon prices.

For example, the cost of free and subsidized parking for autos is estimated to be about 4,500 per automobile per car. Obviously that subsidy would still be there if cars were electric or powered by energy schmoos.

But translate that into subsidy per gallon. A typical light vehicle is driven 12,000 miles per year. So if all that parking was for light vehicles, that would translate into 37.5 cents per mile. If we assume the average light vehicle gets 25 miles per gallon, that translates into around $9.37 cents per gallon subsidy. But not all parking is used for light vehicles. Attributing about 60% of free and subsidized parking to light vehicles is close enough for a comment on a blog post made near midnight. That means the parking subsidy alone is worth around $5.62 per gallon.

And consider other types of infrastructure subsidies. Consider various zoning requirements: low density rules, single use rules that prevent development of mixed use neighborhoods, setback rules that keep front doors from being too close to the street or sidewalk all favor driving over walking or biking. I suspect you would need a carbon price that translates into eight or ten dollars per gallon just to compensate for this kind of indirect subsidy - which again is a subsidy of the automobile and not directly of oil. Currently these things do subsidize oil, but since what they really subsidize is gasoline the distortionary effect would remain if cars were electric or hydrogen or whatever.

Gar Lipow said...

Damn. Hit preview gar. What they subsidize is AUTOMOBILES, not gasoline. They currently subsidize gasoline and diesel, but if cars were electric they would still favor cars.

Ken Houghton said...

" a supposedly more efficient prices of $4.37 per gallon."

Amazingly, that is approximately the price in Canada. Seems an easy comparison to make from there.

Min said...

Gar Lipow: "For example, the cost of free and subsidized parking for autos is estimated to be about 4,500 per automobile per car. Obviously that subsidy would still be there if cars were electric or powered by energy schmoos.

"But translate that into subsidy per gallon."

Lessee, a parked vehicle uses no gas. That gives us 4500/0 = infinity. Verrry interesting. ;)