The real price of fossil fuel

The price people pay at the pump is not the real price of fuel. The reason that fuel is so cheap is because of subsidies. Lots of them. So many of them that I doubt the government even knows which of its own departments are chipping in subsidies for one thing or another that leads to fuel being "cheaper" at the pump.

I once heard, from a source that I trust to have done reasonable research, that the unsubsidized cost of gasoline in Canada would be $12 per litre. The current cost at the pump in town here is $1.15 per litre.

So when people complain that the price of gas has gone up by ten cents, I can't help but point out the other $10 that they are unknowingly paying, indirectly, through their taxes. To me, the ten cents means nothing compared to that.

If we level the playing field and eliminate the subsidies, I think suddenly a lot of people will decide that electric cars are not so expensive after all. And people will find all sorts of nifty ways to want to (rather than need to) drive less. And suddenly growing your own food looks like an even better idea than it already did.

What I read (a number of years ago) is that the additional costs not covered by the pump price are largely "externalities": things like hospital/health costs from fossil fuel pollution, environmental damage from mining or drilling and transportation (spillage), etc.

The total cost to the economy as a whole was something like $10 per gallon or more.

Using usa and a subsidy of 10x the price would be as big as the total collected by everyone paying taxes, both people and businesses.

140 billion gallons a year.(2015)
$2 a gallon for gas (subsidy would be $20 gallon)
20 x 140 billion is 2.8 trillion.

Thats the entire budget of the usa.

If we got rid of the subsidies, i wouldn't need to pay taxes anymore? That was a joke, but more data needed on how they tabulate these subsidies. First glance it seems excessive.

Glenn Herbert wrote:What I read (a number of years ago) is that the additional costs not covered by the pump price are largely "externalities": things like hospital/health costs from fossil fuel pollution, environmental damage from mining or drilling and transportation (spillage), etc.

This is my understanding as well.  There are direct money subsidies to the fossil fuel industries, but not -- as I understand it -- to the extent of 10x (or so) of the pump price.  What they've got is a bunch of sweetheart deals with respect to not being charged with the real price (or, usually, any price) for their negative externalities, which are very large.

The problem is that environmental and human health externalities are notoriously difficult to reduce to money values in a way that is not contentious.  (Remember, it is very hard to make a person understand a thing when their livelihood depends on their NOT understanding it.)

Sure, we can price a human life the way the insurance industry does or the way the workers' comp people do.  Sure, we can price guess wildly at the health costs from air pollution, but these are not known in any real way because they haven't all been amortized and incurred until every currently breathing person is in the grave and their lifetime medical costs totaled up, and even then, there's no way to allocate which portion of their lifetime medical costs were from air pollution and which from, say, their tobacco smoking habits.  Yes, there are responsible ways to estimate these costs across populations, but people who are politically hostile to you doing so have LOTS AND LOTS of attack surfaces to challenge your numbers.

It's the same everywhere else in the universe of externalities pricing.  No fair observer doubts they are huge, and hugely expensive.  But putting hard numbers on them is difficult.  And putting numbers on them that a lobbyist for the energy industry won't dispute? Way harder.

I'm not saying this for purposes of disagreeing with any part of Shawn's point -- I agree with all of it. My point is just that it's an uphill battle to convince the people who have an entrenched interest in cheap gasoline.  And that's a lot of people!

To the original conclusion, that electric cars will be seen to be more economical if subsidies (and hidden externalities) are eliminated, there is the factor of where the electricity comes from. Most id fossil fueled in the US, so the advantage will not be as stark as one might think. Growing your own food, on the other hand, may become a lot more attractive.

Glenn Herbert wrote:To the original conclusion, that electric cars will be seen to be more economical if subsidies (and hidden externalities) are eliminated, there is the factor of where the electricity comes from. Most id fossil fueled in the US, so the advantage will not be as stark as one might think. Growing your own food, on the other hand, may become a lot more attractive.

Excellent point. I always forget that most of your power is fossil fuelled. Where I live our power is 97% hydro generated. Which of course has its own problems. And its own set of subsidies.

Anyone have any data on this?

I definitely don't support using fossil fuels, in general, but Crude Oil gets turned into MANY different products, once refined, not just gasoline - plastics, lubricating oil, other fuels, etc all come out of the same gallon of crude, so those products also "subsidize" the cost to the consumer.
We also don't NEED any of these products in society either, but that's another issue.  

If gasoline only accounts to 10%(spitballing) of each barrel of crude, who's to say that sale of those other products don't account for recouping of some of the cost?

Or maybe you're saying the subsidies go to the "drilling" side of the business, and not to the purchase/refinement of foreign oil; that would make much more sense.

Dustin Rhodes wrote:If gasoline only accounts to 10%(spitballing) of each barrel of crude, who's to say that sale of those other products don't account for recouping of some of the cost?

Hi Dustin, yes, a good reminder of all the other uses of oil.

My understanding is that 70% of petroleum usage is for transportation.