That Gallon Of Gas Costs More Than You Think

Mar 12, 2015

When adding in the social cost, gasoline cost four more dollars than what you pay at the pump.
Credit Laura Candler

Gasoline and natural gas have hit record-low prices in the last few months. It was hailed as overwhelmingly good news for consumers and the economy.

But the price you pay at the pump may not be the real cost.

“So the real cost of that gallon of gas is the price you pay at the pump plus about four dollars,” says Drew Shindell, a professor of climate change at Duke University’s Nicholas School of the Environment.

Shindell wrote a paper that calculates the “social cost” of energy, or the total cost to society.

“Every time you drive your car, if you’re running a gasoline engine or if you turn on a light switch and power is generated somewhere, you put out a lot of particulate pollutants which have health damages,” he says. “But those also affect climate and you put out CO2 which affects climate and you put out a variety of pollutants which affects thing like our ability to grow crops.”

Another way to put it: an average gas-burning Toyota is causing $2,000 a year in damages to people’s health and the environment.

Shindell’s models expand on a federal formula created in 2010 that calculates the social cost of carbon. He found it is much more expensive and damaging than previously believed.

Coal fares the worst in Shindell’s model, becoming four times more expensive.

Carbon pollution is one reason utility companies have moved away from coal to natural gas. Duke Energy, in particular, is betting big on natural gas. The company is building new gas-fired plants and other infrastructure like the proposed 550-mile Atlantic Coast Pipeline between West Virginia and eastern North Carolina.

“There’s been an extraordinary discovery of shale gas in the U.S.,” Duke Energy CEO Lynn Good told Bloomberg News last fall. “And so the pipeline represents an infrastructure or highway to bring that as to our customers. And so we believe as we look at the cost of natural gas in the future it’s going to be a very competitive source of fuel and this pipeline brings it to our customers so they can experience that low cost source of energy.”

Natural gas, according to Shindell, still has a social cost that more than doubles its price-per-kilowatt hour.

But the cheapest production cost and lowest consumer bills are exactly the kinds of short-term, cost-effective decisions customers and investors have demanded, and utility companies have delivered for a century.

Another example of a short-term decision that had long-term consequences: decades ago, no one had any idea that sticking coal ash in unlined pits near rivers would become an environmental or financial disaster.

Last February, the Dan River spill occurred and Duke Energy and its rate-payers will likely be on the hook for tens of billions of dollars to clean it up. The spill also results in untold human health and environmental effects. Shindell addresses the alternative: renewables. 

“The general viewpoint I would say, in most Americans is, ‘Wow, solar and wind, what a great idea. Non-polluting, non-climate change causing. Too bad they are so expensive,”  Shindell says. “Well, really they are not so expensive. They are just expensive if you only calculate the cost to generate them and ignore all of the damages that are passed on to society.”

Shindell’s research is published in last month’s issue of the journal Climatic Change.