Yes, I know I am beating a dead horse. Whatever. The cost of fuel is a hot topic, widely covered and discussed, and often misinterpreted. I tend to babel on oil and gas prices and the tangential issues that influence these moving targets, and have a new piece of the puzzle today.
A common statement that you will hear some U.S. citizens say when the topic of high gas costs is broached is, “Europe still pays more than we do.” While this may be true in the absolute cost per gallon (3.8L) of gasoline, numbers can be used to deceive when not presented properly. As it turns out, the average cost of one gallon of gasoline in Europe is $8.70 as compared with the U.S. cost of $4.00 per gallon. This is a misleading figure because the components of the two different cost figures are drastically different.
In the U.S., about 11% of the final cost per gallon is from taxes. At the $4.00 per gallon average cost, this means that $0.44 is tax and $3.56 is the pretax cost per gallon. Europe’s prices, on the other hand, are comprised of 70% taxes and 30% pretax cost. Taxes on the $8.70 average per gallon cost are $6.09 and the pretax cost per gallon is $2.61. Wait, did you catch that? If you disregard taxes, Europeans pay $0.95 LESS than Americans for one gallon of gasoline.
How can it be that Europeans pay less than Americans for fuel (without factoring in taxes)? It helps to look at relationships and ratios in this instance. As it turns out, the $0.95 per gallon less that Europeans are paying is 26.7% less than the American cost, which is almost exactly the same percentage of depreciation the U.S. Dollar has experienced against the Euro over the past five years (27%). Coincidence? I doubt it.
The highly disproportionate taxation of gasoline gives me a much more positive view of the U.S. government. However, the low-tax approach may be very short-sighted. By taxing gasoline so heavily Europe has been able to better manage the demand and implement other transportation solutions utilizing the tax revenue. By keeping gasoline taxes low, the U.S. has created a situation where everyone is addicted to gasoline because it was such an affordable commodity.
Either way, this was just an exploratory look at what really makes up the differences in cost experienced at the pump between the U.S. and Europe. Basically, gasoline costs the same amount of money in both places when you take out taxes and adjust for the impact of currency conversions.
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51 Comments
From the little research that I have done, European nations made a conscience and well conceived decision to tax the crap out of gas as a result of the Oil Crisis that was experienced in the 70s. As you mention here, that curbed use of oil and led to changes in habit.
This is the method that Thomas Friendman, author of The World is Flat proposes. He thinks the US should tax oil heavily and get us over 8.00 per gallon, thus drastically changing our dependency and infrastructure.
Good post.
It would have been great to tax us heavily 10 years ago, but today in our receding economy, I really don’t think people would be able to afford $8/gal. With 1/3 of the nation in a recession, $8/gallon could actually destroy our infrastructure, not help it.
First, I do not think it would have been any better, relatively, to add the tax ten years ago. It is going to hurt no matter when it happens; and make no mistake, it certainly is when, not if.
Second, the U.S. is not technically experiencing a recession. The economy has showed GDP expansion in each of the last two quarters, albeit horrifically small expansion.
In terms of destroying infrastructure…I don’t know about that. We are already starting to see people switching to more fuel efficient vehicles, increased utilization of mass transit, and a growing public sense of disgust with gas prices and all the institutions associated with it, justly or unjustly. Ultimately, increasing usage of mass transit coupled with more tax revenue to fund new projects will decrease the cost to the consumer while increasing the quality. That’s a bold statement, but I stand by it.
Federal (11%) and State (3%) taxes actually account for 14% of the price per gallon (average). We will be at $5 a gallon easy by the end of the summer. $7 per gallon if a major storm shuts down the rigs in the Gulf of Mexico.
I was just going to say… we are in a recession?
I just remember hearing a few months ago that there were a handful of states that were already in a recession. While the NorthEast is an economic juggernaut, other states are experiencing economic hardships.
While its commendable that people and companies are taking a more proactive approach to encourage, fund, and develop alternate methods of transportation, I am still of the opinion that all of it is a day late and a buck short. What ever happened to ethanol and electric? I maybe see 1 electric car a year and I have never seen a car that runs on ethanol. Those type of vehicles are too expensive to mass produce.
On an ending note: Wasn’t the 2008 Green Car of the Year, the Chevrolet Tahoe Hybrid? It gets 22 highway mpg. It’s like $60000 and then you get the greenest 22 mpg out there. Yay!
Bush’s tax cuts stopped Clinton’s inevidable recession in its tracks early in his first term. I have a feeling the economic stimulus package will have a similar effect on the decrease in GDP. Like Jay said, technically we are not in a recession, but the GDP gains in the last two quarters are very very very tiny.
I am really curious about how the economy will be with our next leader. Is Bush getting out just in time as Bill did?
The solution here is to take this opportunity to use taxes to keep the gas prices at the highest consumer price they reach before (and if) the wholesale prices go down. The pain of increasing prices gets borne by the gas companies, while the government gets to implement the difficult decisions pain free at the tail end.
United Kingdom: 244,820 sq km
USA: 9,629,091 sq km
You do the math.
i fail to see how the size of a landmass is relative to this, especially without an accompanying figure for population density.
I disagree with you in saying that the “low tax” approach is short-sighted. How anyone can make that argument is beyond me.
I think that I speak for the majority of Americans in saying that I do not want the government controlling markets through taxation. The American market will phase out oil as is necessary, and in its place new markets and industries will develop.
While in contrast to Europe, they taxed their fuel so highly that the people were forced into using less. It’s unnatural. Governments controlling markets like that is not ever a good thing.
Rineberg – Nice article. However, I disagree with the premise that the small number of states experiencing receding GDP equates to the nation being in a recession.
Danny – diminishing of the issue to a simple land mass ration is not a valid argument. The geographical organization of those individuals and the transportation systems used to link everything together is far more important than the total land area. Especially when considering the United States. Take Alaska, for example, which accounts for 1,477,277 sq km of the 9,161,923 sq km total but has an approximate population of only 683,478.
Charles – you have some good points and I see your perspective. However, you would be naive to believe that the situation we operate in is a purely capitalist economy, which is not the case. On paper and in theory, you are correct. In practice, you are not. Government regulation and taxation occurs to varying degrees on a very broad spectrum of goods and services. People are only complaining about this particular one because it may force them to stop being selfishly lavish.
Charles, I think Jason is very right in his reply to you. Our govenment is constantly interfering in ‘free’ markets, for example by giving over huge subsidies, bailouts, and natural resources to big corporations. Another example related to this topic, the above blog talks about the tax that is technically included in the price of a gallon of gas, but what about the huge amount of our income taxes that has gone towards military presence in and around the Persian Gulf? I include the massive aid to Israel (which Obama just said he would continue) the war (600 billion and counting). My point is, people are already paying way more for a gallon of gas than it shows you at the pump. Maybe we’re paying more than Europeans…
Charles
What would be wrong exactly with everyone using less oil?
Come on Keeks, moderate consuming of goods violates everything it means to be an American.
Ken – I never even thought about the cost of the petroleum-derivative fuels consumed by the government funded by income tax. This is a very intriguing topic. I may consider doing some calculations…
Wonderful idea.
Let’s see.
US gas=$4 + $5.60 tax=$9.60 (There’s already
about $.40 tax on it)
How to cause a massive depression and
still bankrupt the country…faster.
Greg
Your right if we do that then terrorists have won.
Danny:
Europe – 10,180,000 km²
USA – 9,629,091 sq km
You do the math.
Why are you comparing continents to countries? Why are you comapring land masses to begin with? Our country is built on roads (personal vehicles). Other countries focus on mass transit (trains, busses). Apples and Oranges!
The original discussion is about how
the gas cost/tax cost per gallon ratio differs between America and Europe!
Personally, I’d like to see Jay perform the calculations Ken spoke of.
cost of gas in Europe/UK…twice what we pay – BUT most company perks offer a company car for managers – “all expenses paid”.
One thing that amazes me is the ignorance with which so many Americans, yes I am one, tend to operate with.
There is a big, huge, difference between European countries and the US. There is far fewer rural population there than here. Most of us commute greater distances where public transport is simply not cost effective to implement. Why tax so heavily?
Just let the economy deal with it.
It will.
I’m not sure if anyone else brought it up cause I couldn’t read them all but you need to take into account the disposable income differences. I am employed when my health insurance is good and I pay $340 per month for my portion of medical and dental coverage. I know that my employer pays approximately $1000 per month for their portion of my coverage. I’ve done a little research and from what I see, Europe as a whole pretty much has free medical, dental, and vision. I know there are complaints, but, it’s still free.
Does anyone else think that if they had, as in my case, $1340 more to spend every month, maybe we could afford $8 in taxes per gallon. The Europeans say we shouldn’t cry about our gas prices and should build “public transportation” but no one talks about the definative differences in the distribution of our incomes.
The United States is a large country. My family had an exchange student from Germany when I was in high school. We travel by road with him from California to Kansas to visit family and he was absolutely stunned by the fact that we just kept driving and that we were still in the same country. I am driving from California to Kansas this summer to visit my father. The trip is 1650 miles each way. If you started in Normandy, France and drove 1650 miles east where would you end up? Would you still be in the same country?
Things are going to change! Protests from truckers in Europe right now show that they’re not laughing now. Their goverments will cut taxes to appease everyone and then everyone will protest the reductions in health care benefits. The whole world has been commenting on the United States and our failures for years, but from what I can tell, the United States has done much better and weathering this current crisis than Europe. People in the United States are changing their habits to compensate for higher costs but what can someone in Europe do that they probably already do because of the higher costs they already had?
It’s going to be great to see how the whole thing turns out!!!!
——————————————–
Wonderful idea.
Let’s see.
US gas=$4 + $5.60 tax=$9.60 (There’s already
about $.40 tax on it)
How to cause a massive depression and
still bankrupt the country…faster.
——————————————–
Except for the fact that you’re forgetting one small detail. If we do this, we stop paying directly on gas, and use public transportation services more often. Since we aren’t paying directly on gas, this means we save a good million or possibly even billions of dollars a year. I can’t do the exact math, but I know it ranges a good deal, so no, you’re wrong, it won’t drive the country into a depression.
John:
I can’t do the exact math, but I know it ranges a good deal, so no, you’re wrong, it won’t drive the country into a depression.
If it doesn’t have numbers, it’s not science.
Keep trying.
I apologize for my absence on this discussion.
jomama – John does have a valid point in that the discrepancy in land use and modes of transportation make a great deal of difference in terms of the impact consumers feel when gasoline prices increase. To address your recession comment: I agree, a large-scale tax hike on gasoline would most likely put the economy into a recession. However, I was not suggesting levying Europe-style taxes. I merely wanted to show people that when they say Europeans pay more for gas, that is not technically true; they pay more in taxes on gasoline, and that is not the same thing at all.
I am sorry but health care is not “free” as you may think in Europe. You have no choice but to pay it and it comes out of your wages every month the same as taxes. I think the only reason why people think it is free is because of all of these Michael Moore movies showing people just walking into a doctor’s office and being seen without handing over money…at that exact point. It is wonderful for the umemployed as they do not have to pay NHS, but I doubt they are as worried as we are about gas prices. I find this article very interesting as I have made the same argument after living in London; that gas prices are higher in Europe. Now that I realise it is tax. In either case, yes, America was built on cars, but I would gladly pay an extra $4 in tax per gallon if it meant having efficient public transportation. I must also say that this is not an easy feat and I can personally vouch after living in London and paying the highest for public transportation and getting the worse service. We must change the way we live. Simple. Get rid of your SUV’s, stop leaving your car running when you get a gallon of milk from Superamerica, etc. We should become self-suffient so we don’t have to stick our noses in other peoples affairs becasue we are gasping for oil.
I live in rural America and there is no alternative, public transportation here. For those of you who think we can all just get on the bus, maybe you’d better take a closer look at what America really looks like. A lot of poor people live in rural America and they are trapped by rising fuel costs. Interesting discussion BTW.
When I mentioned that building public transportation was not feasible it was because I live in California in the central valley. Eveyone thinks California is “ahead” of the curve. Think again! LA and San Fran do not make up CA! I HAVE to drive 32 miles round trip to work everyday in order to have the good paying job that I have. Living in London gives you no insight into what life would be like with public transportation improvements. Are you going to build a 260 mile subway system from here to San Fran?! People in the big cities of America do need to make changes but we all have to agree that there is an element of the population that cannont make the same changes. Also, if anyone where I live left their car running when they went in for a gallon of milk, it wouldn’t be there when they came out!
Chad – I agree that public transportation as we know it cannot be extended to all places in the United States. There are several things that can be done, though, to help alleviate the problems.
One being more thoughtful land development in the future. Instead of continuing to build suburban sprawl a hundred miles in diameter around a major metropolitan area, perhaps revitalization and restoration of currently developed areas that have fallen into disrepair is a more prudent approach. Also, building in small centers that provide people with the availability to walk or use small public transit to get to and from local stores is picking up popularity.
Additionally, my commute to work is similar to yours despite that I live right smack in the middle of the Philadelphia metro area. What did I do? I got rid of my SUV, which I loved until gas hit the first spike of $3 a gallon two years ago, and got a smaller, more fuel efficient car plus a motorcycle. I use the motorcycle almost 50% of the time, its getting at least 40 mpg, and I enjoy the commute much more.
I agree completely. I have grown weary of the fact that my small town of 11000 continues to build out and out and out. There are empty lots and empty fields in between large housing project. This has never made sense to me. I too have a motorcycle that I commute to work almost 80% of the time here in CA but I’m the lucky one. I feel for the others of society. I think that the one greatest advancement that could happen right now is for there to be an plug in electric car available that goes at leat 55mph, has at least a 40 mile range, and costs $10,000 or less. According to my research, this car would cover a HUGE percentage of person who HAVE to commute some distance. The Federal Goverment wants to subsidize research into “alternate” energy when the could subsidize this design of car directly to the consumer to reduce the cost to under $10000. This, I believe, would make an enormous impact on fuel usage in America. Just my thoughts.
Ah, the electric car. I was waiting for someone to bring that up. Yes, its true, a car you can charge from your home outlets would significantly impact the demand of petroleum fuel for vehicles. But, on a broader scale, one must look at how that energy is generated. It is easy to find the figures on what percentage of your electricity comes from what source, but suffice it to say that the vast majority is coal, and the second is usually oil. So, the massive increase of demand on our power grids will require the production of more energy and the cheapest way to do that is burn more coal. This may help reduce gas prices, but it will lead to an even worse environmental impact. The power grids right now do not even have the capability to absorb the increase in demand that would occur from this sort of switch, meaning that there would be enormous capital investments and time to completion required. Now, if we could get smarter at generating electricity cheaply and less offensively than at present, electric vehicles would make sense.
The only way electric plugin cars would work is if nuclear energy was supplying the electricity. What is the worst thing about nuclear energy? Waste? Send it to the moon and bury it. I’ll start an organization right now called “PolluteTheMoon.com” It will work!
I agree with you completely about the increased demand on the power grid and electrical supplies. I am currently employed as a power plant operator in the state that it is most difficult to operate a power plant in. I operate a 25 MW fluid bed combustor that is fueled with petroleum coke (a byproduct of refining that precious oil). Our emissions limits are the most stringent in the state and therefore the country. There is not another power plant in the world that can burn this byproduct more efficiently or with less impact on the environment. If we didn’t burn it, they would ship it to Utah and burn it with NO emission controls.
Your statement about oil being second on power generation is wrong unless you’re talking natural gas. Power generators long ago found it cost ineffective to generate power with oil when the consumer refuses to pay higher power bills. That being said, I also operate two 95 MW combined cycle peaker plants (gas turbines) that are fueled by natural gas. Once again, our emissions are lower than any other region in the world. My company has purchased the property and is moving forward with building a VERY large solar power plant. This is the tried and true solar power method that does not need to have any more subsidies. Parabolic mirrors focus sunlight on a pipe carrying an oil. This oil then transfers it’s heat to water and this creates the steam needed to turn a steam turbine. This works!!! No research necessary.
There are lots of ways that the electrical generating community can close the gaps for “plug in” electrical cars. Just try to convince a “tree hugger” that you are just trying to help. Here in CA they would love to see my plant close because is a “carbon burner!”. What they never have a response to is the question of what is going to be done with the petroleum coke if my plant does not burn it. Ship it to Utah? How about the current happenings of huge freighters of petroleum coke being shipped to Korea and China from Long Beach. Anyone have a guess as to their emission controls? NONE!!! I like to call these people, “Not In My Environmentalists”. Do your research, most of the smog formed in regions of CA during certain times of the year is caused by contaminants coming from……..CHINA.
So we have to make a choice, do we as a country attempt to become independent from oils influence over our society or do we allow the status quo to continue in order to stop the natural freight train that is global warming. We have to make a change in some direction and we can’t have it both ways.
By the way, for everyone that thinks that the oil companies are losing out because the price of oil doubled and the price of refined products didn’t, the price being charged to us for burning the byproduct they create when refining those products, just DOUBLED per ton. Can you say, double your electric bill!!!
AH, nuclear energy, the great savior. I received my training for the power industry by the great US Navy. I operated nuclear reactors onboard Nimitz class aircraft carriers. The greatest problem with nuclear power is waste, but the solution is not in getting rid of the waste. The solution is in preventing the waste. A reactor in the US Navy has nuclear fuel that is nearly 99% pure. The civilian power industry has fuel that is maybe 5% pure. This is due to the cost of the fuel and the price allow for electricity. Another great solution overlooked by our goverment when coming up with an “Energy Policy” is to subsidize the quality of the nuclear fuel. US Navy ships refuel infrequently and produce much less waste due to operating techniques and quality of supplies. The goverment could subsidize the civilian fuel to keep the plants cost effective while increasing effective full power hours and reducing the total amounts of waste created. Yet again, the United States is WAY behind the world on this one. Hell, IRAN is building a more advanced nuclear power plant than any in the states. What a world!!
Going off Jon’s entrepreneurial spirit, how feasible would it be to launch the nuke waste into the Sun? I’m assuming it’d be too expensive unless they managed to build some kind of massive sling shot that could have the capsule reach escape velocity without requiring fuel.
Andrew, I’m not too sure what kind of slingshots you were playing with as a kid…
Hi Jason,
Congrats on your engagement! One question, though, did you convert the liter to gallon when comparing the European prices? Just figured you’d want to confirm this. Not trying to be a ball-buster but Greg insisted I write and ask.
Never mind – re-read your piece and saw your support. Very impressive article.
Thank you, Linda. I am a very lucky guy!
To answer your question: the CNN article that quoted the European prices had already completed the conversion from liters to gallons, so I was fortunate in not having to do it myself.
One thing nobody mentioned is the size of the US! You can walk from one country to another in Europe, not so in the US. What works in the EU cant work in the US!
I’m curious as to the source of your data. The numbers seem way off if you look at the International Energy Agency data (check page 3 of the May08 report here: http://www.iea.org/Textbase/stats/surveys/mps.pdf). Unless I’m misinterpreting their report, gas is more expensive in Germany, Italy, and Spain (excluding taxes as you’ve done). Only in the UK is it cheaper excluding taxes and only by a penny per litre (0.871 in the UK v. 0.881 in the US).
Hi WealthBoy – awesome report – it has been filed for later use.
My source was average price for the European Union lifted from a CNN article whose link can be found in the second paragraph the $8.70 and the $4.00 figures are both links that go to the CNN article).
If you notice, some countries on the info you provided pay less and some pay more than the U.S.
Hi,
I am from Australia where we are currently arguing over a tax of $1.13 per l. I just found this article when looking for a comparison of fuel taxes and prices in the US vs. Europe. The idea that Government regulation and fuel taxes are a bad idea is true only if we know that a) gasoline from petroleum will be available for ever at cheap prices and b) there are no impacts from using it that will effect the lives of future generations. The impacts of rising CO2 levels on the worlds climate, and the harmful effects on biodiversity and our ability to grow food are now almost beyond dispute. Furthermore, there is growing acceptance that we have only between 5 and 25 years before world oil production peaks, after which prices will skyrocket to perhaps 5 or 10 times their current levels. Increasing fuel taxes now, is the only way to wean people of petroleum in controlled manner before the oil shock rteally hits and to reduce our CO2 emissions from transportation. Sure a fuel tax will hurt, but the impact of a sudden, irreversible spike in prices due to supply declining while demand continues ot increase will devestate the economy and civilsation as we know it. We are already seeing the impacts of continuing to build inefficent gas-guzzling cars and trucks on our car industries. The problem could be though if we have already hit peak oil!
Regardless of what any other countyr pays for a gallon or liter of gasoline the bottom line according to the above article ,which is very accurate according to prices and taxes, is that the only way to see an immediate drop in the price of gasoline for americans is to raise the value of the ameerican dollar. Offshore drilling, hybrid cars or other alternative energy sources may give some relief in the future but the only immediate action I see is to increase the value of the dollar.
Thanks, Richard – good summation. The one thing I will say is that I believe offshore drilling can assist in a long-term increase in the value of the dollar. As the new wells become operational, the U.S. could import less foreign oil thereby reducing the trade deficit. The increase in infrastructure during construction of the offshore rigs will also provide an economic boost, increasing the dollar’s strength in the short term as well.
If the U.S. had chosen to be a moral people, and leaving Iraqi oil alone, and following Al Gore, decided to develop the South Western deserts, with the technology of the times, solar/thermal-molten sodium – electricity installations, for the same amount of money as that war cost, today, we would be tapping into the largest, renewable, sustainable, energy source the world has ever known. It would have paid every energy bill in the U.S.A. for maintenance fees only – FOREVER! It would be equal to an oil field that can NEVER run dry! Low cost electric power, and hydrogen gas for all!
After the millions of murders, and 650 billions of dollars, borrowed from our children’s futures and pissed away, with thousands of our own and others maimed and disfigured for life, millions of families utterly destroyed, ours and theirs, we are no closer to Iraqi oil production than the Iraqis are!
The next time you hear a blithering idiot spoiled brat, drunken, drug addicted, sociopath, rich Arabic saber dancing daddie’s boy, stand at a microphone and threaten YOUR safety with someone ELSE’S weapons, remember what you lost America, remember, and weep!
Uncle,
You can’t learn morality until you make an immoral mistake.
The above plan, however perfect sounding, is unrealistic. There is just still way too much money to be made off of the current oil-driven infrastructure. That doesn’t justify our means of securing a piece of the pie (war, etc.), but it certainly explains our behavior.
Renewable energy won’t be put in place until oil runs out and profits run dry. That’s capitalism, no?
Basic economics would tell you that this isn’t as simple as you are making out. Pricing decisions are different under different tax levels, since the equilibriums shift due to changes in the price level that the market can bear (elasticity of demand). Therefore under a higher tax schedule it may well be profit maximising behaviour to price lower in order to lessen the incidence of the tax burden on consumers.
Nevertheless, the US can’t realistically be described as paying more for petrol than Europe. Aggregate demand is most strongly influenced by the final price to the consumer and therefore it is this price which is the most important.
Furthermore, the US government has made a conscious decision not to tax petrol very much for the reasons that a) the country is so heavily dependent on oil and b) it would be a political nightmare for any administration raising petrol prices.
Taking tax off is a flawed method of justifying anger at “high” prices.
David,
All excellent points. One thing I will add to your last comment:
Althouh taking a tax off might be a flawed justification of anger over higher prices, it is NEVER a bad idea to lower taxes. Every ounce of economic data I have ever seen argues that lower taxes is better for the economy. The government is the most poorly operated organization in the world and the less money they have to squander the better.
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