Close this search box.

Fossil Fuels: Price at the Pump

I’ve been thinking about how we’re going to get shut of fossil fuels.

(Picture from here.)

Oh, yeah. Why? We have an increasing carbon dioxide footprint in the atmosphere. It’s causing the earth to grow warmer than it has ever been in the history of our species. We have built our civilization based on that temperature range including housing, food, transportation, and other infrastructure. With the increase of temperature, all of those adaptations are at best at risk and at worst doomed. The earth will abide but what we’ve built will not. The biggest contributor to that CO2 footprint is burning fossil fuels. Therefore, stopping the input into the atmosphere is a necessary first step.


First, a quick overview of the technical issues.

The biggest technical issue is that we have an entire industry built to supply fossil fuels and an entire economy built to consume them. Power? Right there with natural gas. Transportation? Cars. Trains. Trucks. Ships. Construction? Tractors. Backhoes. Bulldozers. Industry? Power, for one. But also furnaces. Kilns. Forges. Smelting. Ore refining. Mining.

Sure, some of these can convert to electricity. Aluminum refining is already one of the larger consumers of electric power. But mining? Heavy construction? All of them are built on fossil fuels. The container ship bringing your Christmas presents?

I’m pretty sure we can convert light transportation such as cars and trains to electricity. Pushing the combustion back to a central source means the source can be transformed from using something like natural gas to nuclear or renewables. Electricity is fungible.

I’m less sanguine for more intense uses such as air travel, ships, and construction equipment. That said, Volvo has an electric compact electric excavator. Some electric mining equipment is now available. I haven’t seen a lithium powered crane yet. And it’s not clear to me what the duty cycle is. It’s also possible to create artificial fossil fuels that do not come from petroleum—to me that’s the likely path for things like air travel and ships. Things that don’t have a ready plug to charge up and expend a lot of energy.

If we just say that it’s possible that we can replace all combustion-based systems with electric equivalents, what’s the problem? Now, we get into the social aspect of things.

The problem is, as always, cost.

This is where to my mind we have a social issue that is masquerading as a technical problem. Cost is required currency (read money, energy, or other like material) in order to cause an action. Filling up the Buick to drive to Grandma’s house represents the required currency to visit Grandma. The monetary representation of that is the numeric quantification of that cost commonly called price.

The problem is that quantification.

The cost of a tank of gas is the cost of the drilling process, transportation and refinement of the crude, transportation of the gasoline to the station. It includes the maintenance of the equipment to process all of them. It includes a bit of profit for each stage of the process. There’s a tiny amount to maintain the roads embedded in the final cost. So, if you’re up here in Massachusetts and paying $3.09/gallon (which I just did), about 9% of that went to fix those potholes. It works out to barely ten percent of what Massachusetts spends on transportation.

What that $3.09 does not include is the remaining 90% for transportation, the cost of cleaning up oil spills, CO2 emissions, health effects of CO2 and non-CO2 emissions, effects on the food supply, and the rebuilding from climate-change caused storms. These are external costs—costs not borne by the producer of the product. The cost of CO2 is not borne by the producer of the product that creates the CO2, either the user of the fossil fuel consuming product or the producer of the fossil fuel itself. Essentially, both the producers of fossil fuels and the products that consume them get these external costs for free.

Sometimes, external costs are good things. Roads and bridges are a good example. In this case, society has made a decision that the benefits of having roads and bridges are of sufficient value that the costs are better absorbed by society as a whole. That’s a good example but I have a better one.

Unlike most countries, the USA does not require most airports to charge landing fees. (It’s a little different for large airports like Boston or Chicago. This applies more to mid-to-small-sized airports.) If I am a student pilot in Canada and I want to do a set of practice landings, I have to pay for each one. Not in the United States. The natural consequence of this is that student pilots do a lot more practice landings in the USA than in Canada. The FAA made the conscious choice that this was a good thing and decided that absorbing the external cost of practice landings was worth it.

However, usually external costs are not good things. The societal costs of smoking were not borne by tobacco companies until they were forced to by the courts. Similarly, the health costs of patients with mercury poisoning from coal power plants, their lost revenue, and the trauma to their families is an external cost—not borne by the coal power plants. The increasing destruction by storms, floods, and sea level rise caused by rising CO2 are external costs not borne by fossil fuel manufacturers or fossil fuel burners even though they are responsible for that CO2.

I went and tried to find out what the true cost of gasoline was including these externalities. One article I read suggested it would more or less double the cost/gallon. Another article suggested closer to three times. Personally, I think these are underestimates.

Regardless, these indicate that the actual cost of gasoline—incorporating environmental and health costs—would be much, much higher than we’re experiencing. Forget the direct subsidies to the fossil fuel industry, they also get a subsidy in the form of these external costs. I bet if the construction industry had to choose between a somewhat more expensive electric bulldozer and a cheaper one that costs twice as much to operate, that calculus might be interesting.

A similar sort of economic approach to the Tesla semi-truck was analyzed here, indicating the economics of repair along with cheaper electricity could make the Tesla superior to traditional diesel trucks, provided the supporting infrastructure was done correctly. This would be an even better outcome if the actual cost of diesel was included in the calculations.

A significant part of the problem, then, is these hidden, external costs. We think we’re paying the right price for gasoline but we are, in fact, subsidizing the health and environmental costs of that gasoline. We are either ignoring the cost, hoping it will go away, or pushing the cost onto a societal mechanism like government or the courts—not the most efficient mechanism.

We could incorporate those costs into the price of the product. Given that we’ve ignored this issue for over a century, it would be painful to just do it now. But I think there’s an interesting side effect. Let’s say that we phase in these costs over a long period in the form of fuel taxes. That tax can be used to subsidize the cost of EV purchase. In addition, the EV (or electric construction equipment) owner will never have to pay the tax. We could even have intelligent pricing at the pump by gas mileage, where the vehicle class drives the amount of tax paid for by the owner.

This would push the cost of the product back on both the producer and consumer of the product. This is not at all unheard of. Recognizing an external cost as the price of doing business is something that happens all the time. It’s called regulation.

That tax revenue doesn’t have to be spent by the government directly. Governments rarely do anything themselves. Instead, they sub-contract out. There’s no reason the fossil fuel corporations couldn’t bid for a remediation contract like anyone else.

I just had this lovely vision of Exxon and BP bidding for a contract to reforest the fracking fields of Pennsylvania.


Leave a Comment

Your email address will not be published. Required fields are marked *