Where the money goes when you buy a gallon of gas

An overview of the problems electric cars pose for funding road maintenance includes a breakdown of where the money for each gallon of gas goes:

About half goes to the drillers that extract oil from the earth. Just under a quarter pays the refineries to turn crude into gasoline. And around 6 percent goes to distributors.

The rest, or typically about 20 percent of every gallon of gas, goes to various governments to maintain and enhance the U.S. transportation’s infrastructure.

Currently, the federal government charges 18.4 cents per gallon of gasoline, which provides 85 percent to 90 percent of the Highway Trust Fund that finances most on highways and .

State and local government charge their own taxes that vary widely. Combined with the national levy, fuel taxes range from over 70 cents per gallon in high-tax states like California and Pennsylvania to just over 30 cents in states like Alaska and Arizona. The difference is a key reason the price of gasoline changes so dramatically when you cross state lines.

I would guess few drivers have a sense of where money at the gas station goes. Instead, they likely just react to increases or decreases in prices and when prices go up possibly grumble about who is being made rich.

Adding more context to Americans spending 7% of income on gas

AAA reports on how much Americans spend on gasoline:

Analysts say Americans are now spending 7% of their income on gas, a statistic that is up 1.5% from last year.

If you make $45,000 per year, you’re shelling out over $3,000 just to put gas in your vehicle.

The 7% figure may be interesting in itself but this is a statistic that begs for more background information. Is 7% a lot or a little? Should people be alarmed?

The story already includes two pieces of context:

  1. This is an increase from last year. Generally, people do not want to be paying significantly higher prices year after year. While 1.5% is a low number, drivers would probably not want this number to keep going up.
  2. A slightly lower than average income person or family – the median household income is a bit higher than this – spends over $3,000 on gas. People could read this figure and then think where else that $3,000 could be used.

But, there is more information that could be useful here.

  1. Historically, how much do Americans spend on gasoline? The article includes a one-year trend but how does this look over decades? Are gas prices going up the same way medical costs are going up?
  2. How does this 7% compare to other essential categories of spending such as food (and the groceries vs. eating out breakdown could be interesting) or housing?
  3. What are the total costs of car ownership? Gasoline adds up but vehicle owners also have to factor in maintenance and insurance.
  4. These are average figures for gasoline consumption: how much different will gas costs be for SUV and truck owners (and these are driving the car market) versus small car owners?
  5. How does this compare to gasoline costs in other countries? The rise to 7% may seem like a lot but gasoline costs more in some other industrialized countries and people in other countries drive less than Americans.

While this may be too much to ask for a short news story, gas costs, as well as most other social and economic statistics, are complicated. The numbers do not necessarily interpret themselves. Something going up or down or staying the same is as meaningful as its context and what we make of it.

What could kill the McMansion, SUV, and suburban way of life: $10 a gallon gas

One of the ways that the American suburban way of life of single-family homes and driving could come to an end is really expensive oil. Here is one prediction of the fallout:

For decades, we’ve lived — and driven — in denial, somehow assuming we have the “right” to cheap gasoline, and therefore, low-cost transportation. Now it’s time to face reality and consider what will happen when — not if — gas hits $10 a gallon, not because of taxes, but because we will use up the planet’s petroleum…


Rush-hour on Interstate 95 is a breeze as half of all motorists can no longer afford to drive. But the highways are riddled with potholes as the price of asphalt — made from petroleum — quintuples, making it impossible to maintain the roads because gas tax revenues have dropped with decreased sales. With more people working from home or on flex-time, traffic congestion is a thing of the past.


With home heating oil at $12 a gallon, people close off rooms in their “McMansions” and huddle in the few remaining spaces they can afford to heat, usually with wood stoves, which are also in short supply. Office buildings, by law, will be allowed to heat to no more than 60 degrees in colder months. Sweaters become a fashion rage…

Around town

Local traffic drops as people consolidate their few truly necessary shopping trips. Because farmers are so dependent on oil (for fertilizers, packaging and transport), food prices skyrocket. Food imported out of season becomes an occasional treat. Few can afford to eat out at now-chilly restaurants dealing with the same food shortages. Wagons and carts, bikes with racks, mopeds and scooters replace SUVs. Kids take the school bus daily instead of being chauffeured by mom. Suburban housing prices continue to fall as people flock to the walkable cities with good mass transit. Small town taxes rise, encouraging further migration. Schools can’t afford good teachers who must still commute from far away due to lack of local affordable housing.

If gasoline was indeed $10 or more a gallon, I imagine a lot would change. Perhaps even more so if there was a sudden spike to that price range instead of a gradual increase that would provide time for people and communities to adjust. Even with significantly higher gas prices, some would be very reluctant to give up the American lifestyle organized around driving.

One question to ask in this scenario is how quickly society could adjust. The American suburbs have been decades in the making. How quickly could they be dismantled? It is common now to hear social scientists, policymakers, and others discussing resilient cities and communities. Could the country adjust if the suburbs became unsustainable due to high gas prices? (According to this one prediction, we should all have bicycles on hand and hope we live close enough to mass transit lines.)

A second question: if the American government has spent many resources in support of the suburban way of life (such as socialized mortgages), would the various government actors try to sustain suburbia in the face of such a threat? Just because living in suburbia might be tougher does not necessarily mean Americans will stop wanting to live there.

Explosion in car ownership, oil consumption in China

Driving may have peaked in the United States but more Chinese own cars and are buying gas:

Over the past decade, the number of cars sold in China has jumped from 2 million a year to nearly 20 million. No surprise, then, that oil consumption soared from 250,000 barrels a day to 2.25 million barrels a day between 2003 and 2013, according to a new report from United States Energy Information Agency. As a result, since 2009, China has been forced to import half of its oil.

That hockey stick-like growth has, of course, exponentially worsened China’s catastrophic pollution and so the government’s latest 5-year plan calls for 500,000 electric and hybrid cars to be on the road by 2015, with 5 million by 2020. To hit those targets, China has invested billions of dollars to jump-start the country’s electric car industry. It’s also providing subsidies to get the motoring masses to go fossil-fuel free.

Buying a car isn’t just an isolated decision: it is linked to numerous areas in a society.

1. Gas consumption. This can help drive the oil industry, boost the import of gasoline, and affect the price.

2. Environmental effects. More cars means more smog.

3. An infrastructure of roads and other assorted services like gas stations and repair places.

4. Lifestyles that can be designed around the car. This includes more sprawl, fast food, and big box stores.

5. Perhaps a growing cultural emphasis on the independence and status related to owning a car.

All of this is quite a change.

American driving habits peaked in 2004-2005, before the recession

Check out a number of charts about American driving habits and they tend to agree: the amount of driving and gas consumption plateaued or declined starting in 2004-2005.

So, technically speaking, the two-car garage is no longer average. Realistically speaking, plenty of suburban households have a pair of Explorers or Civics sitting in their driveways. And thanks to population growth, the total number of vehicles on the road has started rising again.  (So no need to shed tears for Detroit, yet.) But, in the end, individual families aren’t buying quite so many vehicles as a few years ago…

Americans are also spending far less time in the cars they do own. The average U.S. driver traveled 12,492 miles in 2011, down about 1,200 miles, or 9 percent, from our mid-aughts peak…

Lower mileage, along with more fuel-efficient vehicles, has in turn slashed our fuel consumption. Collectively, we haven’t pumped this little gas since the 1990s…

All of these changes have something intriguing in common: They started well before the financial crisis and recession. The number of cars per household peaked in 2005. Miles-per-driver peaked in 2004, as so did gas use. Which is to say, as Sivak does, that it would be silly to pin these changes entirely on the downturn.

Of course, there are still plenty of cars on the roads and lots of driving, particularly due to population growth. But, in terms of individual habits, driving has decreased as has gas consumption. Three quick questions:

1. Is this a good thing for environmentalists and those opposed to sprawl? One way to think about this is to ask whether the individual-level declines are enough to offset the still-increasing number of cars due to more people.

2. For policy makers, is it better to pursue better gas mileage or getting more cars off the roads in the first place? To put it another way, is the enemy just gas guzzlers like pick-up trucks and SUVs or is the problem all cars? The second option is less popular though both could be pursued: think stricter gas mileage standards for cars and promoting more New Urbanist and dense development.

3. Just how much decline might we expect in the future? It is one thing to cut back on driving but most Americans can’t get rid of it all together or even cut it in half by fifty percent.

Economy down, traffic congestion down

A company that tracks traffic congestion suggests that congestion was down in a number of metropolitan areas in 2011 because of the economy:

Of the 100 most populous metro areas, 70 saw declines in traffic congestion while just 30 had increases, says Jim Bak, co-author of the 2011 U.S. Traffic Scorecard for Kirkland, Wash.-based INRIX…

Bak says the data show that the reduction in gridlock on the nation’s roads stems from rising fuel prices, lackluster gains in employment and modest increases in highway capacity because of construction projects completed under the federal stimulus program.

In some cases, the connection between job growth and increased congestion was clear. Cities that outpaced the national average of 1.5% growth in employment experienced some of the biggest increases in traffic congestion: Miami, 2.3% employment growth; Tampa, up 3%; and Houston, up 3.2%.

Cities that had big drops in congestion often were those that saw road construction slow considerably from 2010 to 2011 and those where gasoline prices were well above the national average at the peak in April 2011.

Does this fall into the small category of benefits of the economic crisis of recent years?

I would guess many metropolitan residents would be happy with less congestion but I would also guess they wouldn’t like the tradeoff of fewer jobs and higher gas prices. Of course, there have been discussions for years about how higher gas prices would limit driving. But does higher gas prices necessarily have to align with less growth?

Slowdown in exurban growth

New estimates from the US Census suggest that growth in the exurbs has slowed in recent years:

The annual rate of growth in American cities and surrounding urban areas has now surpassed that of exurbs for the first time in at least 20 years, spanning the most recent era of sprawling suburban development…

“The heyday of exurbs may well be behind us,” Yale University economist Robert J. Shiller said. Shiller, co-creator of a Standard & Poor’s housing index, is perhaps best known for identifying the risks of a U.S. housing bubble before it actually burst in 2006-2007. Examining the current market, he believes America is now at a turning point, shifting away from faraway suburbs to cities amid persistently high gasoline prices…

About 10.6 million Americans reside in the nation’s exurbs, just 5 percent of the number in large metropolitan areas. That number for exurbs represents annual growth of just 0.4 percent from 2010 to 2011, smaller than the 0.8 percent rate for cities and their surrounding urban areas. Still, it also represents the largest one-year growth drop for exurbs in at least 20 years…

In all, 99 of the 100 fastest-growing exurbs and outer suburbs saw slower or no growth in 2011 compared with the mid-decade housing peak – the exception being Spotsylvania County, Va., located south of the Washington, D.C., metropolitan area, which has boomed even in the downturn. Nearly three-fourths of the top 100 outer suburban areas also saw slower growth compared with 2010, hurt by $3-a-gallon gasoline last year that has since climbed higher.

Translation: growth on the metropolitan fringes slowed in 2010. This doesn’t mean that suburban growth overall slowed but growth on the edges has slowed. I don’t think we should be too surprised by this: the housing market is in bad shape, gas prices are up, and the number of both residential and commercial projects in the suburbs has dropped. If the economy was good, the exurbs would be where growth tends to happen as there is available land (cheaper to build here than to redevelop existing suburban properties or tackle some small infill projects) and people would have money for transportation to job centers (whether these are edge cities or big cities).

I think the real question is whether the exurban growth picks up when the economy improves or at least if gas becomes cheaper. Even if exurban growth essentially stops today, many metropolitan regions could tolerate some more dense land use in their suburbs.

An office park that successfully created a “culture of public transit”

A lot of people would want more Americans to consistently use public transit. But one writer suggests a San Ramon, California office park where “33 percent of the park’s 30,000 workers leave their cars at home” might hold some answers. Here is a look at how this office park’s transportation center tackles logistics, focus on the multiple benefits of using public transit, and has “evangelistic zeal”:

1. Logistics: the office park was built in 1978 and needed to competed with other office parks. The office park purchased a fleet of buses, found ways to subsidize costs, and coordinated bus schedules with other nearby mass transit options. Today: “There are now 13 different bus routes running to the park, and the connections to BART and various local train and express bus services are coordinated. On its website, the Ranch now pitches its transit program as a competitive advantage.”

2. Pitching the multiple benefits of public transit: it’s not just about money but improving health and reducing stress. Today:

Marci says that once riders begin leaving their cars at home they go through a stressful period of two weeks or so where they feel that they’ve lost the control they had in the car. But within three weeks they notice their overall stress levels are lower. “Transit requires that you go at a different pace. You have to wait. If there were roses, we’d smell them,” she says, “There’s not much of that in our lives.” She says HR people have called her saying some of their meaner workers have become pleasant people after switching to transit.

3. The office, particularly its program manager, aggressively push the program and look to engage people in conversations.

Overall, this sounds interesting. But I am a bit skeptical about whether this is a possible solution to energy and transportation issues:

1. Even with all of this work, 67% of the workers still use their cars on a regular basis. (This is based on data the story provides.) Is this the best we can hope for outside of really dense urban areas like New York City? It really is difficult to fight a culture that prizes individuals being able to drive themselves.

2. There is no mention in this article about the cost of this program. It could be cheaper in the long run (if all the possible costs are accounted for) but I imagine some money might need to be spent up front for similar programs with the reduced costs coming down the road. The article suggests this program helped this office park compete – how much did it help?

3. Is this three-pronged strategy viable on a larger scale? Or does it only work under certain conditions?

Early signs: higher gas prices lead to less driving

With gas prices moving upward, there are some signs that this is already changing driving behavior among Americans:

Drivers bought about 2.4 million fewer gallons for the week of April 1, a 3.6 percent drop from last year, according to MasterCard SpendingPulse, which tracks the volume of gas sold at 140,000 service stations nationwide…

Before the decline, demand was increasing for two months. Some analysts had expected the trend to continue because the economic recovery was picking up, adding 216,000 jobs in March…

Instead, about 70 percent of the nation’s major gas-station chains say sales have fallen, according to a March survey by the Oil Price Information Service. More than half reported a drop of 3 percent or more — the sharpest since the summer of 2008, when gas soared past $4 a gallon. Now it’s creeping toward $4 again…

The decline is somewhat puzzling because Americans typically curb their driving only as a last resort, after sacrificing other forms of discretionary spending, like shopping for new clothes, or going to movies, concerts and restaurants.

Economists and others have been talking about this for a while: what exactly is the price point of a gallon of gasoline where Americans might drastically change their transportation patterns? In this earlier post, I briefly discussed the claim that the Obama administration actually wants higher gas prices as this would lead to greener transportation choices such as mass transit or bicycling or car pooling (or other options).

But if gasoline prices stayed relatively high (so they don’t really go down like they have after some of the temporary spikes in recent years – see the weekly average in the US going back to 1990 here or a graph showing prices going back to the mid 1970s here), it might lead to all sorts of changes. This could include everything from buying smaller cars (as the story above suggests is happening) to more Amtrak riders to longer semi trailers to rethinking patterns of sprawl.

Claim: Obama wants higher gas prices. Is this necessarily bad?

Mississippi Governor Haley Barbour (a rumored Republican presidential candidate) suggested today that Obama wants higher gas prices:

Barbour…accused the Obama administration Wednesday of favoring a run-up in gas prices to prod consumers to buy more fuel-efficient cars…

Barbour cited 2008 comments from Steven Chu, now President Barack Obama’s energy secretary, that a gradual increase in gasoline taxes could coax consumers into dumping their gas-guzzlers and finding homes closer to where they work. Chu, then a Nobel Prize-winning professor, argued that higher costs per gallon could force investments in alternative fuels and spur cleaner energy sources.

Barbour said Obama’s energy team wouldn’t be happy until gas prices reached $9 a gallon.

Barbour goes on to say that there are two primary negative consequences of higher gas prices: it hurts workers and it hurts the larger economy. In a troubled economic period, Barbour is suggesting that Obama is willing to risk a prolonged economic crisis in order to promote things like electric cars and clean energy.

But this is really a larger issue and affects multiple dimensions of American life. Let’s assume that raising gas prices cuts down on driving and gas consumption overall – and there is evidence to back this up. There could be some benefits to this:

1. This would limit our dependence on foreign nations for  oil. What has happened in the Middle East in recent weeks can have an impact on our economy because we import so much oil. Some have gone so far as to say that this is a “national security issue.”

2. Using less gasoline would lead to lower levels of pollution.

3. Having more expensive gasoline may reign in sprawl, or at least make living in denser areas (cities or denser suburbs) more attractive. (See an example of this argument here.) In the long run, higher gas prices could be viewed by some as a threat (or by some as a welcome deterrent) to the sprawling suburban lifestyle that many Americans have adopted  since the end of World War II. Higher fuel prices would likely impact driving trips, fast-food restaurants, and trucking costs, all key pieces to the typical suburban lifestyle. One could argue that the American lifestyle of the last 65 years has been made possible by relatively cheap gasoline – and life would change if it was consistently at European price levels.

There could be other impacts as well including more walking and bicycling (cheaper, less pollution, better for health) and less time wasted due to traffic and congestion.

It bears watching how this rhetoric over gas prices continues. Is it simply a matter of a short-term (lower prices to help the economy) vs. a long-term perspective (higher prices help limit some negative consequences of driving) or could this turn into a debate about how driving (and cheap gasoline) is closely linked to the essence of American life?