Increased Oil Prices as a Test of a Carbon Tax
The cost of a barrel of oil has increased by double from its $41 minimum average in 2016 to $80 a barrel now for the OPEC basket, although the 2018 average is still $69 a barrel.
A barrel of oil supplies 42 gallons of gasoline. So roughly, at the minimum 2016, the cost of oil in gasoline was about $1 per gallon, and now it is about $2 per gallon, which would explain an increase of $1 per gallon in two years. There are of course charges for shipping, refining, and distribution, taxes, and a profit for everybody involved, including distribution. Then there are stock distributions.
We recall the three years of 2011-13 when the average was around $108 a barrel. At that time, driving was suppressed, and people were turning to fuel economical autos. While the current excursion is only about half of that, we are still interested in seeing what the effect will be in driving people to less and more economical driving. We will evaluate what the equivalent level of carbon tax that this represents over the minimum cost oil year.
In 2017, the US consumed 7.28 billion barrels of oil. If they now start consuming at the $80 a barrel rate, they will be paying $582 billion dollars a year for oil. Only part of this is for personal autos, the other is transportation for goods and services, which is hidden from the consumer, which can be reflected in inflation. We can evaluate the increase from the $52.51 per barrel average for oil in 2017, and the $40.68 per barrel average for 2016.
Compared to 2017, we multiply the 7.28 billion barrels by the difference (80 – 52.51 = 27.49) to get $200 billion. Dividing by our 329 million population gives a yearly $608 in extra oil costs over last year. The $27.49 per barrel appears as a $0.65 per gallon increase.
We also compare to 2016, multiplying 7.28 billion barrels by the difference (80 – 40.68 = 39.32) to get $286 billion. Dividing by 329 million gives $870 in extra oil costs per person over 2016. The $39.32 per barrel appears as a $0.94 per gallon increase over 2016.
Since the per capita CO2 production is 22.3 tons per capita, the above oil charges would be equivalent to $608/22.3 = $27 per ton, or $870/22.3 = $39 per ton. These are an intermediate and close to a high rate of carbon tax being proposed.
There are two types of carbon taxes being proposed, both of which are progressive, that is, helping below average income drivers. One just refunds the collected carbon taxes on an equal per capita basis. The other, acts like California’s failing cap and trade, giving money to aid buying cleaner energy cars, and refunding to poorer people who had to pay the taxes. In contrast, paying half of our gas cost increase to foreign countries, part of which are to very wealthy oil oligarchs, is unbelievably regressive. The other half goes to American oil oligarchs and stockholders, which include those with money to invest or retirement plans. Again, rather regressive. Plus, no rebates at all to the poor.
Political inaction leads to exploitation by those in power, I read lately.
Nobody seems to be mentioning this doubling of crude oil prices in two years as a factor in the election, perhaps because it only amounts to $1 per gallon. According to the AAA and GasBuddy, the US average price per gallon of regular is $2.90, a year ago it was $2.48, and two years ago it was $2.26. In California, the average price for regular is $3.82, a year ago it was $3.04, and two years ago, it was $2.77. In Virginia, where a lot of Congressmen live, it is only $2.67 now.
