Why Can’t Someone Calculate the True Price of Gasoline?
May 30, 2023
Blog by Bill Luyties (OWOE Founder and Editor): Over the past few weeks, I've had multiple articles pop up on my news feeds that proclaim that an EV can cost as much to drive per mile as an ICE vehicle. These all appear to be based on an Anderson Economic Group report titled: Real World Cost of Fueling EVs and ICE Vehicles (2nd Edition), dated April 2022 but apparently not issued until early 2023. One article headline actually shouts: Shocking study finds EVs cost more to fuel than gas cars in late 2022. While I generally feel that the Anderson study did a good job of trying to compare costs, the authors of these news articles ignore most of the study and focus on a single headline-grabbing finding that for mid-priced cars EVs cost about the same as ICE cars when charged at home, but cost more when using commercial chargers (see Figure 1). This may well be true today, but the Anderson study and these articles miss the real point - such a comparison is misleading and almost totally irrelevant for a number of key reasons.
This study, and every other one like it ignores the full cost of burning a gallon of gas.
What is the true cost? The price one pays at the pump at the neighborhood Shell station is not the true cost of a gallon of gasoline. It is missing a number of key elements that are not visible to the consumer and yet cost the consumer eventually. Costs that are not included:
Social Cost of Carbon (SCC) which attempts to account for the impact of greenhouse gas emissions on society and the environment, including global average temperature, sea level rise, energy consumption, and agriculture. The EPA, in its September 2022 report: Report on the Social Cost of Greenhouse Gases, concluded that the median cost for year 2020 ranged between $110 and $370 per metric ton of carbon dioxide emitted for a variety of analytical models and input assumptions. We can convert this to a cost per gallon of gas using the fact that gasoline contains 5.5 lbs of carbon per gallon, which would produce 20 lbs of carbon dioxide per gallon when burned; then adding another 2.75 lbs per gallon for emissions associated with crude oil production, transportation and refining per a 2018 Stanford University report (10.3 grams of emissions for every megajoule of crude); which gives a total of 22.75 lbs carbon dioxide per gallon. Using the average mileage rating for a light duty vehicle of 25 mpg, the SCC values range from $4.50 to $15.1 per 100 miles driven.
Including this SCC cost would increase the numbers in Figure 1 for mid-priced ICE cars from $10.34 per 100 miles to between $14.84 and $25.44 per 100 miles, i.e., both greater than the "mostly commercial charging" value for EVs. Also, note that the SCC cost ranges from $1.13 to $3.78 per gallon, as compared to the average cost of regular gasoline across the US in 2021 used by Anderson as $3.32 per gallon.
It should be noted that the EPA report does not account for a number of social costs that would increase these numbers, including: impact from changes in precipitation, extreme weather events, impact on livestock and fisheries, impact on tourism, impact on biodiversity, displacement and migration, etc.
Tax breaks and other subsidies that the fossil fuel industry has enjoyed for decades and that are funded by taxpayers, estimated at $20 billion annually in the US, although some of this can be considered offset by current government subsidies for EV technology.
Cost of drilling related environmental disasters, such as the 2010 BP Horizon disaster that cost BP $65 billion to address. Oil companies attempt to recover as much of these expenses possible from consumers by raising gasoline prices. However, this is not necessarily possible due to the fact that oil is a commodity with price set predominantly by worldwide supply and demand. Much, if not all, of such costs will be borne by shareholders and insurance companies.
Cost of pipeline spills such as the Keystone Pipeline's 2022 major spill that cost $480 million to clean up. Similar to the above, much of these costs are likely to be paid for by shareholders and insurance companies.
Cost of natural disasters such as the current Alberta wildfires. A recent study claims to link about 37 percent of the total area burned in the Western U.S. and Southwest Canada since 1986 to the heat-trapping emissions released by the world’s 88 largest fossil fuel and cement producers.
Cost to plug all 130,000 abandoned oil and gas wells across the US, which has been estimated by the US Department of the Interior will cost between $3 and $19 billion. Some of this cost will be carried by the oil companies, but a significant portion may need taxpayer funding given that many of the responsible companies are no longer in business.
One must also keep in mind that the technology associated with EVs is evolving rapidly and will also change the overall picture in favor of EVs. Whereas ICE technology is well over 100 years old and at the stage where only incremental improvements are likely, EV technology is rapidly advancing. Over the next several years, the industry is likely to see significant changes that will continue to reduce cost and other perceived shortcomings of EVs:
Reductions in battery weight and cost.
Increase in battery capacity (vehicle range).
Reductions in charging times.
Increase in charging options, both home and away, which will address costs identified in the Anderson report as deadhead miles cost (purple bars).
Etc., etc…The magnitude of these unaccounted-for costs and evolving technology make any such ICE vs EV comparison ridiculous. If one were to ignore everything else, including only the SCC cost in the comparison, the headline for these articles would be more like: “Boring study shows that EVs cost less to drive than gas cars and are much better for the environment.” But such articles don’t get attention and online clicks.