Marketplace Logo Donate

Daily business news and economic stories from Marketplace

Gas prices can differ wildly around the globe. Why is that?

Heard on:
A customer prepares to pump gas. Behind him, an electronic sign shows prices are near $5 per gallon.

There are several factors that go into why the price for gas can be so different from country to country. Justin Sullivan via Getty Images

get the podcast

Our friends at the BBC will be the first to tell you that Americans have a lot of nerve complaining about high petroleum prices. Across the pond, they’re paying the equivalent of about $8.60 for a gallon of regular. The national average here is $4.95. But if crude oil is the main culprit — and crude is a global commodity — why the disparity in fuel prices from one country to the next?

There are basically four buckets that make up the cost of a gallon of gasoline. Bob McNally, president of Rapidan Energy Group and former economic advisor to George W. Bush, knows them better than I do. 

“Sixty percent of the price will be the price of crude oil, 17% of the price is going to be the refining cost. And then another 11% of the price is going to be distribution and marketing, getting it to your local station,” he said.

But, that’s only three buckets. What gives? The fourth is taxes, which makes up about 12% of the cost here in the U.S. 

“The main reason that we differ so strongly from the rest of the world, both in terms of the rest of world having higher prices, and lower prices at the pump, has to do with taxes and subsidies,” McNally said.

So, whereas taxes make up just 12% of the cost of a gallon of gas in the U.S., McNally said the percentage is way higher in a country like Norway, where a gallon is running folks $10.82. 

We haven’t seen a push for boosting the gas tax here since the Clinton administration. Robert Johnston at Columbia University said that’s because it’s a political non-starter, especially right now.

“I think what the Biden administration is doing is more focused on developing alternative fuels and technologies, things like electric vehicles, and hydrogen and biofuels,” he said. “That’s a very different, albeit complementary approach to actually trying to limit demand.”

And critics argue the push for an energy transition needs to take a back seat given the pain at the pump.

“The administration has, amazingly, for my perspective, not been willing to pivot at all, when it comes to the policy choices they’re making, despite the the higher prices,” said Katie Tubb, an energy and environment policy analyst at the Heritage Foundation, a think tank that promotes conservative public policies.

A relaxation of renewable fuel standards, she said, would relieve some of the cost refiners are enduring to turn crude into gasoline and diesel. 

Whether or not they’d pass those savings on to the consumer, though, is another matter entirely.

What's Next

Latest Episodes From Our Shows

Listen
5:01 PM PDT
19:12
Listen
4:33 PM PDT
28:07
Listen
1:34 PM PDT
1:50
Listen
7:25 AM PDT
7:55
Listen
Aug 15, 2022
4:26
Listen
Jul 7, 2022
30:13
Listen
Aug 9, 2022
24:46
Exit mobile version