GASENFREUDE
Kurt Brouwer May 7th, 2008
GASENFREUDE – I just paid more than $4 a gallon, so I was feeling a bit sorry for myself until I saw this:
Chart: Carpe Diem; Data: U.S. Department of Energy
Sticker Shock:
I have not driven around Europe in years, so I was shocked to see how high gas prices are over there (by the way, the data in this chart adjusts for the fact that gas is purchased by the liter over there).
So, what causes the extreme difference in prices between the U.S. and Europe:
Taxes: In the U.S., state and Federal currently make up only about 12% of the pump price. Gas taxes in the U.S. are a flat rate of so many cents per gallon, averaging about 40 cents per gallon (see here for more). Because taxes are set at so many cents per gallon, they have actually gone down as a percentage of the pump price (for example, the average tax hit on a gallon in the U.S. was 32% of the price as recently as January 2000). In Europe, government taxes make up a much higher percentage of the price of gas. For example, in Germany, the tax hit would be approximately 50% of the pump price. Yikes.
The Declining Dollar: Because the dollar has fallen so much versus the Euro, the prices in the chart are skewed upwards. For example, if we priced the dollar and the Euro at 1:1 (as opposed to the current exchange rate of 1.55 dollars to the Euro), then the price of a gallon of premium gas in Germany would be equivalent to $5.50 - $6.00 a gallon. Still a lot higher than it is here, but less so than the price in the chart indicates.
Though the rate of increase in gas prices has been lower in Europe, prices there have been very high for decades and — based on their gas tax structure — prices over there will stay very high even if the price of oil comes down because the price of oil only makes up about 30-40% of the gas price (refining, distribution and taxes make up the rest).
In the U.S., the price of oil currently makes up about 70% of the pump price for gas, so if and when oil prices go down, the price of gas will go down too.
Though I seldom feel positive about taxes, I must say that we are fortunate that our gas taxes are calculated in cents per gallon rather than as a percentage of the wholesale price. Pssst. Don’t tell any politicians.
I hope this puts things in perspective. Bottom line: gas prices here have soared, but they are low compared to Europe.
And, if you plan to travel around Europe, just take the train.
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