Gas prices are going up, and it’s annoying to have to pay more, but let’s take a closer look at how much we’re paying for gas.

Even with a recent uptick, gas prices are still lower than they were a decade ago.

Cheap gas is burning the planet, and undercuts all of our efforts to lower greenhouse gas emissions.

After decades of disinflation or deflation, the US economy, in the wake of an dramatic effort to bounce back from the pandemic, is experiencing a surge of inflation.  The media love to point at rising prices at the pump.  Gas was going for around two bucks a gallon in the early days of the pandemic, and nationally has just broken through $3/gallon.

Everyone likes to complain about gas prices, but gasoline in the US is cheap. It’s cheap in historical terms, as the chart below shows: In inflation-adjusted terms, gasoline is cheaper now than it was a decade ago, and is well below its historic peak of more than $5 per gallon (in 2021 dollars).  From 2011 through 2014, the price of gallon of gas (in today’s money) was regularly north of $4.

The price of gasoline fell precipitously after 2014, leading to a dramatic reversal in all of the trends that were helping ameliorate the climate crisis.  Public transit ridership, which had been rising, fell.  The average American, who had been driving less each year after 2004, suddenly started driving more.  The share of new vehicles that were heavier, less fuel efficient light trucks went from less than half to almost 75 percent.  The big increase in driving after gas prices fell in 2014 is directly connected to a surge in transportation-related greenhouse gas emissions.  In Portland, for example, greenhouse gases per person increased by 1,000 pounds per year over the past few years.  Propelled by cheap gas, and combined with larger vehicles, there was a huge increase in crash fatalities and injuries.

Gasoline is cheap in the US compared to other countries.  In Italy, France, Germany, Denmark, the Netherlands and the UK, gas prices are roughly $2 per liter, compared to less than $1 per liter in the US.  These higher fuel prices prompt people and businesses to make different decisions: people drive more efficient vehicles, drive fewer miles, and kill and maim fewer of their brothers and sisters in crashes.  Cheap gas is a principal reason for America’s excessive greenhouse gas emissions and epidemic of traffic violence.

Higher priced gasoline prompts businesses and consumers to make choices and investment decisions that lower our fossil fuel emissions.  Higher gas prices make electric vehicles more competitive, and prompt people to buy more fuel-efficient vehicles.  Higher gas prices also discourage long commutes and make transit more attractive.  The evidence from places like Amsterdam and Copenhagen, where cycling works well for a large fraction of the population is that it isn’t just about bike lanes; high prices for gasoline and high taxes on fossil fuel vehicles provide strong incentives for more efficient travel.  It’s perfectly possible to have a prosperous productive economy and a high standard of living with gas prices that actually come close to asking users to pay something approaching the cost of their decisions.

The Bipartisan Infrastructure Bill just doubles down on continuing subsidies to driving.  It’s got a huge bailout of the Highway Trust Fund (which has roughly $100 billion in general funds since 2000), and these a $118 billion general fund bailout as part of the bill, plus a huge tranche of new money that will keep drivers from facing the true cost of building and maintaining roads and bridges, not to mention paying for environmental and health damage.

Not surprisingly, once conditioned to depend on cheap gasoline, people express dismay at the higher prices.  But getting gasoline prices to more accurately reflect the social, environmental and personal health damage associated with automobiles is essential.

The real macroeconomic concern about inflation is that somehow we end up in an accelerating spiral. Insulating Americans from the true cost that their gasoline purchases impose on other Americans, the rest of the world and the environment isn’t saving anyone in the long run.  We’ll end up paying for cheap gasoline in higher costs of figuring out how to reduce greenhouse gases in even more expensive, less efficient ways, and in paying more to deal with the damage caused by climate change.