American Pain at the Gas Pump is Self-Inflicted
American drivers feel less “pain at the pump” than all but a handful of other nations – most of which are major oil producers that heavily subsidize fuel prices. That’s the conclusion of Bloomberg.com’s quarterly gasoline price ranking, and one that’s at odds with the experience of many Americans.
If filling the tank in the U.S. is as relatively painless as the ranking shows, why do many Americans say it hurts so much?
The gas ranking first ran in May, when U.S. gasoline prices spiked, to put some of the campaign-season economic and political debate into perspective. The pain factor is calculated by dividing a nation’s average price per gallon of gasoline by its average daily income. In other words, it’s the share of a person’s wallet needed to buy a gallon of gasoline in each country.
But what this ranking doesn’t take into account is the amount of gasoline consumed. When that’s considered, a very different picture of gasoline “pain” emerges. Let’s compare the two.
Poor Nations Rank Higher in ‘Pain at the Pump’
Visualizing Bloomberg’s data from August helps explain the “pain at the pump” (see graphic above). Usually, the less developed a nation is, the higher its pain rank (heavy subsidizers like Saudi Arabia are outliers). The average American can afford paying $3.75 per gallon more readily than, say, the average Indian, who makes only $4 a day and pays more than $5 per gallon -- a staggering 137 percent of a day’s wages.
As Bloomberg points out, the example of India shows the toll of energy poverty in poor nations, where average people are priced out of the global economy because they can’t meet basic needs. How could the average Indian afford a gallon, let alone a full tank or a car?
They can’t. In fact, no country can keep up with U.S. demand for fuel. The world’s average daily gasoline consumption is a mere 92 gallons daily per 1,000 people, while the U.S. consumes more than ten times that amount. Because of their relatively high incomes, Americans had the fifth lowest “pain at the pump,” out of 60 nations.
American ‘Consumption Pain’ Is Self-Inflicted
Factoring gasoline consumption rates into the ranking presents a radically different picture of the world and confirms that Americans do feel pain. Let’s call this “consumption pain” (click on map to the left). The formula is simple enough: Multiply the “pain at the pump” (the average price per gallon of gasoline over average daily income) by daily gasoline consumption per capita, obtained from the EIA and World Bank.
By this measure, the U.S. ranks sixth highest in terms of “consumption pain” despite its relatively low prices at the pump (11th lowest in Bloomberg’s ranking) and high income (11th highest). One cause is the American penchant for cruising. Americans own fewer passenger vehicles per capita than most other developed nations but consume 35 percent more gasoline per capita than the next highest-consuming nation. In absolute terms, the U.S. consumes more gasoline in aggregate than the next 20 nations combined, including China, Japan, Russia, Germany, U.K., and Brazil.
In a country that spans an entire continent, it takes a lot to move people and goods between coasts and heartland – but Americans also just like to drive.
Seeking an iPhone Moment
With the presidential election only weeks away, candidates are more sensitive than ever to popular concerns about rising pump prices. The staff and supporting policymakers for both President Barack Obama and Governor Mitt Romney would do well to note the self-inflicted nature of American gasoline grievances.
Innovations in automotive fuel efficiency, mandated or not, are insufficient. Technological solutions that continue to rely on fossil fuels may reduce the portion of wages spent on gasoline, but they won’t break American dependence on those resources.
An optimist might observe that driving among young Americans has declined 23 percent in the last decade. Reducing even a fraction of the $575 billion that the U.S. alone spends annually on gasoline represents a significant market opportunity for innovation in the transportation industry, from gasoline alternatives to bicycle-share programs.
Bill Ford, the chairman of Ford Motor Company, is attempting to reposition the second-largest U.S. automaker into a “personal mobility” company, reflecting his belief that the future of his great-grandfather Henry Ford’s company lies in integrating vehicle and infrastructure technology. Time will tell whether the transformation will be as complete as that of Apple Inc., which dropped the word “computer” from its name when Steve Jobs unveiled the first iPhone.
Whether it’s market-imposed “pain at the pump,” or self-inflicted consumption pain, innovative business leaders and governments have tremendous economic incentives to envision new scenarios for the future of transportation that require less gasoline.
Simon Lim is a Senior Analyst at GreenOrder, a management consulting group that helps companies gain competitive advantage through environmental innovation.