Jon Huntsman and the Price of Gas

Things have been busy around here, so I haven't finished my evaluation of the fourth Republican debate yet. However, one point was raised by Jon Huntsman in the first third of the debate that required some research.

Huntsman says that, according to the Milken Institute, the actual price per gallon of gasoline that we pay is $13, once you include troop deployments and the cost of keeping sea lanes open. Where does that money come from? Well I certainly don't pay $13 at the gas pump, and if the oil companies were paying $13 in costs for every $4 gallon of gas they sell me, they'd have gone out of business long ago. Clearly, he's implying that government is paying the extra cost.

Who knows what the government pays for, so I thought I'd take a closer look at those numbers. The United States uses about 3.3 billion barrels of finished motor gasoline per year according to the US Energy Information Administration. A petroleum barrel is 42 gallons, so that's about 138.6 billion gallons of gasoline. If gas is about $4, Huntsman is talking about an extra $9 per gallon, or an extra $1.25 trillion. (This rises to $2.3 trillion if you assume he's talking about all finished petroleum products rather than just motor gasoline.)

It sounds like he thinks the extra costs come from military activities that ensure access to oil, but the entire military budget in 2010 was about $0.8 trillion, less than two-thirds of the extra $1.25 trillion. Even if every single penny of military spending was used to secure oil resources, it still doesn't cover the extra $1.25 trillion that Huntsman claims we're spending.

In fact, total federal discretionary spending in 2010 was $1.3 trillion. For Huntsman to be right, more than 96% of the federal discretionary budget would have to somehow be rerouted towards paying for gasoline without anyone except Huntsman and the Milken Institute knowing what was going on. If this was the case, it would deserve a hell of a lot more than a passing mention in a debate. If this is what he actually believes, he shouldn't be talking about anything else!

So what about that Milken Institute? Can they shed any light on how their numbers add up? Well, I'm not even sure that Huntsman's number actually comes from the Milken Institute. Here's their website; a sitewide search for "$13" doesn't yield anything about $13 gas, and none of their publications seem to relate to gas prices. If they have an explanation for Huntsman's number, I sure couldn't find it. I have contacted both the Huntsman campaign and the Milken Institute for clarification, so we'll see if either can explain what he meant.

In the meantime, however, I was able to find this Scientific American article from July, which cites a report from a group called the Economics for Equity and the Environment (E3) Network. According to E3, the extra $9 per gallon doesn't come from sea lane costs or troop deployments or anything like that. Rather, it comes from the unaccounted-for social cost of carbon emissions, caused by environmental damage, which they claim is $900 per ton of emissions. The Obama Administration's working estimate, published in 2010, is significantly lower, at $21 per ton.

Now the Obama Administration has been wrong before, so maybe E3 is right and $21 is too low. According to this brief (PDF), the UK estimated the social cost as somewhere between $41 and $124/ton. Still, even the higher $124/ton is less than 14% of the $900/ton necessary to reach the extra $9 per gallon that Huntsman claims we're paying. This 18-page report (PDF) from E3 details why they believe $21/ton is too low, but I've yet to find any report from E3 on why the appropriate number is 43 times higher. From the reports that are available, it's clear that in order to reach $900/ton, you have to make extremely pessimistic assumptions about our ability to adapt to climate change, about the possible benefits of warmer climate in some areas, and about future economic growth. However, even if Huntsman is extremely pessimistic on climate change, that still has nothing to do with troop deployments or sea lanes.

Now I'm not saying Huntsman was deliberately misleading about where his number came from or what it meant. I'm just saying the number he gave doesn't make sense on its face, that I couldn't find the number he claimed at the source he gave, and that the only source I could find that gave the same number used a completely different explanation. Oh, and their explanation requires assuming a social cost to carbon emissions about 43 times higher than the Obama Administration assumes.