• Do Gas Prices Include Spill Costs?

    Ezra Klein picked at a meme that I’ve been thinking about.

    One other way to think about the cost of oil is to recognize what is and isn’t in the price of oil. So mega-spills like the Deepwater spill or the spills that happen in other countries are not in the price.

    I’m not so sure about this. One thing we’re hearing is that BP pledges to pay for the costs of the spill. Now, maybe they won’t really pay for everything and/or maybe doing so is rare for companies that are responsible for spills. I don’t know.

    However, what do you expect is (or will be) the ultimate source of every dollar BP pays? I expect it will be consumers. The price of oil (and gasoline) sold by BP will have to reflect it. How could it not? Where else does BP get money to pay for the spill, or anything else? Fact is, if BP pays the cost then it is somehow built into the price of oil. But if BP doesn’t pay, and instead government does, then it could be said unambiguously that the cost isn’t reflected in oil prices.

    Klein goes on to list other things that aren’t in the price that I agree aren’t there (global warming, military spending for Mideast operations, health effects, etc.). These are costs paid for by entities other than oil companies in general, or BP in particular. That’s why they’re not in the price of oil.

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