I've gotten some very good emails on the topic of gas prices. Namely, we're trying to sort through the question of why gas prices vary so much across the country, and what are the factors that really impact prices across states.
Lori noted that you obtain the gas tax rates (by state) on this site. She sorted these tax rates on gas (in cents per gallon, listed highest to lowest) and generated this list (the first number is the state tax on unleaded, second # is diesel). I've copied the list below.
She notes,
California, which has the highest gas prices, is somewhere in the middle (of the list). It also has a lot of refineries, so distribution costs can't be the issue.
When I lived in the Bay Area, and people were asking uncomfortable questions about why gas prices were so high when the refineries were visible from any bridge, the answers that seemed to float around were, "because there are so many fires at the refineries" (weird), "the gas that's refined here goes somewhere else" (um, ok), and "it costs more to produce gas for California because of its higher emissions standards" (that one at least sounds somewhat plausible).
No idea if any of those explanations are as off-the-wall as they sound, but I'm not buying distribution or taxes as the main reasons for variability in prices among states. There's got to be something else at work. Quite a puzzler, isn't it?"
I've also had some great correspondence from OW from Civic Strategies (thanks Otis!). He described a flight in which he sat next to an economics researcher, specializing in the petroleum industry.
I asked her the same question — why are gas prices cheaper in some states/cities than others? Did it have to do with transportation costs?
No, she said. Petroleum is transported to regions by pipelines, and it essentially costs the same to open the spigot in Houston as in Vermont. (The exception, of course, is Hawaii.)
There are three factors, she said, that determine the retail cost for gasoline (aside, of course, from the underlying cost of a barrel of crude):
1.) What are the state and local taxes on motor fuels?
2.) What are the anti-pollution requirements? ("Designer" gasolines, which are blended to help curb emissions, cost more – hence the high cost of gas in places with significant smog problems, like L.A.)
3.) What are the local markets like? Service stations in places with very high real estate costs, like Manhattan, have to charge more to cover costs. And neighborhoods with moderate land costs but highly affluent customers might charge more because their customers don't seem to notice the difference.
Finally, MG, on location in LA, has has not only confirmed that yes, gas is expensive in California, he also notes that,
I notice sometimes that when gas prices go down a few cents downtown, it takes an extra day or two to see a price drop occur in oak brook (in the suburbs).
Ultimately, what causes differences in gas prices? I know believe a number of factors cause the differences (i.e. no single issue is the culprit), including state / local government intervention in the petroleum market (through taxes and regulations) that have the purpose impacting other areas of social life (e.g. maintaining roads and reducing emissions) and a range local market factors (i.e. how much will the local buyer pay for gas). Thanks everyone for the feedback!
Next question — now that the public is thinking about the costs of driving and commuting (and transporting goods), what will the longer term impact be upon urban areas?
(image courtesy of skeptically.org)
State taxes on Gasoline (first number is unleaded, second number is diesel)
New York 31.9/28.9
Pennsylvania 31.1/35.1
Rhode Island 30/30
Washington 28/28
Montana 27.75/28.5
North Carolina 26.6/26.6
Ohio 26/26
Nebraska 25.4/25.4
Maine 25.2/26.3
Connecticut 25/26
Idaho 25/25
Utah 24.5/24.5
Kansas 24/26
Oregon 24/24
Maryland 23.5/24.25
Massachusetts 23.5/23.5
Nevada 23/27
Delaware 23/22
South Dakota 22/22
Colorado 22/20.5
Arkansas 21.5/22.5
North Dakota 21/21
West Virginia 20.5/20.5
Iowa 20/22.5
Minnesota 20/20
Texas 20/20
Dist. of Columbia 20/20
Louisiana 20/20
Tennessee 20/18
Illinois 19/21.5
Michigan 19/15
Alabama 18/19
New Hampshire 18/18
Mississippi 18/18
California 18/18
Arizona 18/18
Indiana 18/16
Vermont 17.5/26
Virginia 17.5/16
New Mexico 17/18
Missouri 17/17
Hawaii 16/16
South Carolina 16/16
Oklahoma 16/13
Kentucky 15/12
Florida 14.5/27.2
New Jersey 14.5/17.5
Wyoming 14/14
Alaska 8/8
Filed under Governance, Economics with 2 Comments
|2 Responses to “Factors that Impact Gasoline Prices”
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April 28th, 2008 at 9:10 pm
Personally I cannot drive my car as much as I would like to. I actually have to limit my driving and make priorities of when do I really have to go somewhere.
April 30th, 2008 at 4:43 pm
Welcome to our high gas prices. In Far North in Alaska, Gas prices range from $4.58 to over $6.73 a gallon. Do like us, in winter snow machines and in summer, four wheelers. I agree with Senator Obama, though life long repulican, Government suspends the gas tax it benefits the oil companies, not consumers. Bad econonics, we live with over the years, though we have huge oil reserves in our back yards. Some of the benefits will end up in the lobbyist pockets just wait. Good Luck.