California is poised to make a significant change to its gas tax policy — potentially raising the price of diesel by an average of $0.47 per gallon and gasoline by an average of $0.37 per gallon. These taxes would attach as part of the Low Carbon Fuel Standard (LCFS) which is aimed at addressing environmental impacts of fuel consumption. To make a meaningful change, they likely need to be more than ten times that figure.
The current proposals and regulations note the need to reduce greenhouse gas emissions and incentivize the adoption of cleaner transportation methods and fuels—however, the relatively modest increases may not capture the environmental and health externalities associated with fossil fuel production, refining, and consumption. They won’t even cover the cost of depleting the non-renewable resource.
The BP Statistical Review of World Energy for 2022 provides some reserves-to-production ratios, which give some indication of how long existing oil reserves would last if production continued at the current pace. Their best estimate indicates the current global demand would deplete reserves in approximately 53 years.
That sets 2075 as the approximate year the wells run dry and the $5 trillion annual petroleum industry ceases to exist. Petrochemical engineering reviews suggest there are approximately 1.5 trillion barrels of oil reserves left to be extracted. The average output of carbon dioxide from one 42-gallon barrel of oil is 426.10 kg and the social cost of carbon in the atmosphere is thought to be approximately $185 per ton.
Some quick back-of-the-envelope math puts the cost of the CO2 emission from a barrel of oil at $77.70, and petroleum refineries can extract about 19 gallons of gasoline from one barrel of oil. Thus, the CO2 cost of a gallon of gasoline is about $4 — nearly ten times the currently proposed tax of $0.47 per gallon.
Implications of Continued Undertaxing
A gas tax regime that fails to account for the externalities generated by the oil and gas industry and foisted upon society means continuing to subsidize fossil fuel consumption at the expense of public health, the environment, and alternative fuel and transportation methods.
Air pollution from fossil fuel use is linked to respiratory diseases, cardiovascular issues, and myriad causes of premature death and dismemberment. The economic costs of these ailments and issues are actual costs, actually incurred and paid by society.
A higher gas tax could not only help offset the aforementioned externalities, but also drive significant behavioral changes—including the transition to clean energy and the embracing of public transportation. Such a transition would reduce our carbon footprint now and align the gas tax with the true cost of gasoline consumption. To that end, California can lead the way in creating a more sustainable and equitable future—by taking bold steps to ensure every gallon of gasoline sold incorporates all the appurtenant costs and leaves no bill for society to foot.
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