How Much Does A Gallon of Gasoline Cost?

Ezra Klein writes that it's a lot more than we think, in the range of at least $4.60, and that's probably low.

Published: 10-Oct-2010

It seems like an easy question. You might ask if I mean premium or regular, and where in the country I’m buying. Beyond that, though, the price is displayed in giant numbers on most thoroughfares. It’s such common knowledge that we ask politicians to rattle it off to show that they retain some awareness of the world they claim to represent. But as the sludge choking the Gulf of Mexico shows, nothing is easy when it comes to oil—especially the price.

Most of us would call the BP spill a tragedy. Ask an economist what it is, however, and you’ll hear a different word: “externality.” An externality is a cost that’s not paid by the people using the good that creates the cost. The spill is going to cost fishermen, it’s going to cost the ecosystem, and it’s going to cost the area’s tourism industry. But that cost won’t be paid by the people who wanted that oil for their cars. It’ll fall on taxpayers, on Gulf Coast residents who need a new job, on the poisoned wildlife.

That means that the gasoline you’re buying at the pump is—stick with me here—too cheap. The price you pay is less than the product’s true cost. And it’s not just catastrophic spills and dramatic disruptions in the Middle East that add to the price. Gasoline has so many hidden costs that there’s a cottage industry devoted to tallying them up. At least the ones that can be tallied up.


Oil and gas projections based on Uppsala University analysis.

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