2. Price versus Cost
• THE PRICE WE SEE • THE COST WE PAY
– Price – Cost
– Market Price – True Cost
– Private Cost – Social Cost
True Cost = Market Price +
External Costs + Subsidies
3. Components of Gasoline PRICE
• Current national average PRICE of a gallon of
gasoline is $2.70
• Of this:
– 54% or $1.46 goes to pay for the crude oil
– 19% or $0.51 goes to pay for oil refining
– 6% or $0.16 goes to distribution and marketing
– 21% or $0.57 goes to various taxes (in PA gas
taxes are ~$0.45/gallon with $0.25 going to the
state and $0.20 going to the federal government)
4. External Costs – Health Effects
• Health costs of air
pollution include asthma
and emphysema. Air
pollution is responsible
for at least $39
billion/year in additional
health costs, perhaps as
high as in the hundreds of
billions/year
5. External Costs – Environmental Effects
• Environmental costs such
as oil spills, damage to
plant life from
tropospheric ozone, and
the impacts of oil drilling
on sensitive habitats is
estimated to cost society
at least $10 billion/year
in damages
6. External Costs – Global Climate Change
• Costs of global
climate change due
to severe
weather, loss of
biodiversity, human
health impacts, and
the costs of
adaptation will be
in the trillions of
dollars in the next
10-20 years
7. Energy Subsidies (aka Corporate Welfare)
• Tax breaks for oil companies (foreign tax
credits, depletion allowances) – average $10-20
billion/year in recent years
• Military costs to protect Middle Eastern oil supplies –
were averaging $50-100 billion/year before the Iraq
invasion (recent estimate by leading economists is that
current Iraq War will cost Americans $2-3 trillion in
the end)
• Highway and road spending – more than $100
billion/year over and above funds raised from existing
gasoline taxes
• All of this at a time when U.S. oil companies are
earning record profits
8. In reality, we DO pay for the hidden
costs of energy use!!
• Higher taxes – Our taxes go up to cover the revenue lost
through corporate tax breaks; to cover the cost of road building
and military protection of oil supplies; to cover health care for
the uninsured; and for environmental clean-up.
• Higher insurance premiums – We all pay more in
insurance to cover the medical costs from pollution.
• Higher prices for other goods and services –
crop damage from air pollution leads to higher food
prices, respiratory ailments lower worker productivity, etc.
9. Oil exploration has a
fairly small ecological
“footprint.” But in
sensitive ecosystems, like
the Amazon
Basin, drilling for oil can
have significant impacts.
10. Prestige oil
spill, 2002, off the
coast of Spain and
Portugal. Twice as
large as the Exxon
Valdez disaster.
11. Mining for coal using the
“mountain top removal”
mining method in West
Virginia. Tops of mountains
are shorn off and the debris
are dumped into surrounding
valleys to expose massive
coal seams.
12.
13. But Isn’t Blowing the Tops Off of
Mountains Good for the Environment?
• http://www.youtube.com/watch?v=8ahRleExjY4
• http://www.youtube.com/watch?v=_fxsg601tuA
• http://www.youtube.com/watch?v=2wQ3Enjwxis
• http://www.youtube.com/watch?v=69t-8DQSlbY
