In an Energy and Capital article, Chris Nelder does some rough calculations to determine what oil is really costing the United States, factoring in all the externalities.
Crude Cost: $69 a Barrel
If the U.S. daily crude oil consumption, 21 million barrels, were bought at the market price (roughly $69 per barrel), it would cost the economy $1.5 billion per day, or $529 billion per year.
Cost of Dependence: $233 Billion a Year
A 2000 study for the Department of Energy reported that supply disruptions, price hikes, and loss of wealth caused by oil market upheavals cost the U.S. economy around $7 trillion (1998 dollars) between 1970 and 2000. The study focused on macroeconomic adjustment costs, the potential loss of GDP, and wealth transfer, but noted “These cost estimates do not include military, strategic or political costs associated with U.S. and world dependence on oil imports.”
All Economic Costs: $480 a Barrel
After taking into account the direct and indirect costs of oil, the economic costs of oil supply disruption, and military expenditures, Milton Copulus estimates the true cost of oil at $480 a barrel, equivalent to an annual expenditure of $10 trillion.
Depending on how you figure it, what you leave in and what you leave out, direct and indirect subsidies come to between $584 billion and $1.9 trillion per year. Typical hidden or disregarded costs include:
- Loss of income from leasing public lands to oil companies for minimal rents
- Tax-funded programs that directly subsidize oil production and consumption
- Health costs from pollution, reduced crop yields
- Direct and indirect costs of traffic delays, traffic accidents, subsidized parking
Burning fossil fuels has serious environmental costs: water and soil pollution, loss of biodiversity and ecosystem services. A 1995 article from the Union of Concerned Scientists arrived at a 1991 figure for environmental externalities of between $54 billion and $232 billion. Allowing for inflation, the current cost could be as much as $345 billion a year.
Climate Change Cost
Using a figure of $35 per ton as the cost of CO2 emissions, burning oil and gas is costing the U.S. $56 trillion per year.
The author Chris Nelder freely admits that these figures are ‘back of a fag packet’ stuff, and frankly to my eyes some of the numbers are inconsistent to put it mildly. Even so, there’s enough here to call into question the mantra that renewable energy is too expensive compared with ‘cheap’ oil and natural gas. As he says, “No wonder $71 billion of new capital was poured into the renewables sector last year”