If you look at tax and program subsidies, defense of oil interests, environmental, and health costs, the real cost of gasoline may be much higher than just the price we pay at the pump. Some estimates of these external costs are between 20 and 70 cents more.
According to the center for technology assessment, about $9-18 billion dollars worth of tax breaks are provided for gasoline production and use. The defense department allots $55-$96 billion per year to protect petroleum resources across the globe.
I’m not necessarily advocating increasing the price at the pump by increasing gas taxes to reflect these costs. However, if these costs were factored into the price of gasoline, it appears that the gap between the real cost of ethanol and the real cost of gasoline would narrow significantly even after the subsidies to ethanol were removed.
Sources: Ethanol Today, August 2005
‘The Real Cost of Gas’ International Center for Technology Assessment 1998