The Real Price of Gas

The staggering costs of subsidies

Complaining about the latest jump in gas prices is an American pastime. People grumble when the price of a gallon of gasoline rises by just a few cents, and it’s treated as a national crisis when prices increase by a dollar.

Gas prices can spike suddenly due to unexpected supply disruptions—such as U.S. wars in the Middle East—but they tend to fall again, albeit slowly. In fact, when adjusted for inflation, the average price of gasoline has changed very little since 1980.

But these relatively low prices mask the true cost of gasoline. Once we account for taxpayer subsidies to oil companies, along with the long-term damage burning oil inflicts on the climate, environment, and public health, the real price of a gallon of gas rises to between $8 and $15.

The U.S. federal government provides roughly $35 billion annually in direct subsidies to the fossil fuel industry—about double the level in 2017. These subsidies take the form of tax breaks, below-market leases on public land, and regulatory loopholes.

Then there are the so-called “hidden costs” of fossil fuel use. These include long-term health problems caused by air pollution, severe weather events caused by global warming, and military spending to secure global oil supply routes. Together, these costs exceed $600 billion per year in the United States and more than $5 trillion globally.

Air pollution alone results in more than $820 billion in annual health-related costs in the U.S. It contributes to approximately 107,000 premature deaths each year and adds an estimated $2,500 in medical expenses per American, driven by illnesses such as asthma, and cardiovascular diseases. Globally, between 7 and 9 million people die each year from air pollution–related illnesses.

The economic toll of global warming is also staggering. Over the past decade, severe weather events—such as hurricanes, floods, and wildfires—have cost the global economy more than $2 trillion. In the United States, there have been 426 so-called “billion-dollar disasters” since 1980, causing more than $3.1 trillion in damages, with recent years averaging over $149 billion annually. A 2025 report found that wildfire smoke caused U.S. workers to lose over $1 trillion in wages between 2020 and 2024.

There are also significant military costs associated with protecting global oil supplies, estimated at around $81 billion per year. If oil companies were required to bear the costs of protecting the global oil supply lines themselves, they would have needed to add between $11 and $30 to each barrel of crude oil—equivalent to roughly 20 to 70 cents per gallon of gasoline.

So, the numbers displayed at the gas station are not the true price of the fuel we pump into our cars. They represent only the portion consumers pay directly. The rest is passed on indirectly through taxes, higher healthcare costs, environmental damage, and a warming planet.

As long as these costs remain hidden, gasoline will continue to appear cheap—and meaningful change will remain elusive. Recognizing the true price of gas is not just an economic exercise; it is a prerequisite for honest policymaking, responsible markets, and a sustainable future.

In my next blog, I will explore why oil companies are able to impose such huge costs on society with little accountability.