We all know that gas and oil are subsidized commodities, but what does that really mean? According to Gal Luft, Executive Director of the Institute for the Analysis of Global Security in a recent Op Ed in the Miami Herald, it means that the actual cost of a gallon of gas is actually $11.35.

This number is pretty staggering, even given gas that is currently nearly $4 a gallon at the pump. That $11.35 total takes into account the hidden costs (PDF), as enumerated by the late Milton Copulos, of oil-related defense expenditures (growing by the hour if we take into account the spending on the Iraq war as an oil-related defense expenditure), supply disruptions, pollution related respiratory illnesses, climate change, and lost economic activity and tax revenues from our foreign dependence. With $460 billion a year going from the U.S. to the OPEC countries to support our almost 21 million barrels per day oil habit and these additional external costs, no wonder foreign governments can afford to buy up our investment banks, our ports, our infrastructure. It’s an annual boondoggle transfer of wealth from the very rich to the obscenely wealthy. As Luft writes:

To understand the forces at play it is instructive to visualize the scale of OPEC's potential wealth in comparison to that of the consuming countries. At $100 a barrel, OPEC's oil assets stand at roughly $92 trillion, equivalent to almost half of the world's total financial assets and nearly twice the market capitalization of all the companies traded in the world's 27 top stock markets. If one adds the worth of OPEC's huge gas reserves as well as additional oil reserves that have not yet been discovered, the wealth of OPEC more than doubles. -- Miami Herald

Now let’s think about that price going up to $200 a barrel. And while Gil suggests making all cars flex-fuel and concentrating on domestic sources of energy, including coal, the recent collapse of a piece of the Antarctic ice shelf seven times the size of Manhattan tells us that the current balance of economic power must not be our only consideration. Consider the additional cost of that gallon of gas if we add in the bill from all the climate related disasters over the last two decades and those yet to come. Can we even put a price tag on losing New Orleans?

Economists and environmentalists have posited that until gas reaches $5 a gallon at the pump, people won’t change their behavior. Lester Brown of the Earth Policy Institute believes we need to start working towards it through gas taxes that truly reflect the hidden costs of each gallon (PDF -- see 'Shifting Taxes and Subsidies' section). He draws the comparison to the cigarette taxes imposed over the last several years and in response to the CDC’s evaluation in 2006 of the true cost of smoking. He also cites the higher gas taxes in Japan and many European countries that have helped move people towards levels of fuel efficiency, conservation and public transportation use that are far higher than those in the U.S. He recommends a phased in gas tax of 40¢ per gallon per year over the next 12 years with a concurrent reduction in income tax.

While higher prices at the pump sound like the wrong way to go in the midst of a recession, we pay the price no matter what. We pay it in our national debt, in our loss of national assets, in the foreign expenditure of our tax dollars and in the high price we are paying for catastrophic climate change. At least if we are paying it directly, we will have some control over how much we are actually paying and have the ability to make choices that would reduce that burden. As it stands now, almost 70% of what we pay is out of our hands but effects our lives and futures deeply. Further Reading:

• Peak Oil - How Will You Ride the Slide? (has links to other Celsias Peak Oil articles)
• Five Key Moments in the History of Oil