Which State is Getting Hit Hardest by Rising Gas Prices?

Answer: HAWAII




The rising price of gas, at a national average of $3.52 in the week ended March 7,  is beginning to take a toll across the country. But which state or region is getting hit the hardest? Places such as Wyoming and Montana, where people tend to drive low-mileage pick-up trucks over long distances to get to work or the store?  Southern California, which has the potentially combustible combination of a car-dependent culture and nasty traffic? How about New Jersey, where idling in traffic is a pastime and the state stubbornly refuses to embrace lower-cost self-service?

Try Hawaii.

Many people don't regard Hawaii as part of the United States, either because they've never been there or because President Obama was born there. But it is. While tiny and distant, Hawaii's islands are home to a fair number of our fellow citizens. The Aloha State is the nation's 40th-largest, with more residents than Maine, Montana or either Dakota and more than Wyoming and Vermont combined.

Let's count the ways in which Hawaii and its economy are uniquely situated to feel the pain of higher gas taxes.

1. Splendid Isolation. Hawaii is a few thousand miles from anywhere. While Oahu is home to two refineries, crude oil has to be shipped in from great distances (Asia or California) and then shipped throughout the islands. All these transportation and distribution costs help make retail gas expensive in Hawaii.  (Prices were capped briefly in 2005 and 2006.) According to Gasbuddy.com, Hawaii has the highest average gas prices in the nation $3.94 a gallon. On Saturday, February 26, I paid $4.11 per gallon for gas at a station near Volcano National Park on the Big Island.

Of course, expensive gas has a way of making other things expensive. In Hawaii, it's possible to eat an awful lot of locally produced fish, beef and fruits. But a lot of stuff has to be shipped in from afar packaged food, clothes, tools, books, toys, cars, equipment. And it can't arrive on a train, which is one of the most efficient ways to move goods in an era of expensive oil. As delivery companies such as UPS , DHL and Federal Express add fuel surcharges to freight deliveries, that has the effect of pushing prices up.

2. Mass Non-Transit. When the price of oil and gas spikes, consumers look to alternatives. Some may start biking, or join carpools, or saddle up the horse. Many others start to look to public transportation. While the U.S. remains inordinately dependent on the car, there's been a lot of growth in public transport in recent years. In addition to the extensive, longstanding systems in densely populated places such as Boston, New York and Washington, light rail or subway systems in Phoenix, Charlotte, Los Angeles, Portland (Oregon) and Seattle now offer commuters and travelers an alternative. (In February, Phoenix's light rail system drew 45,000 per day). Traffic-clogged Honolulu, which is home to much of the state's population, has a bus system, but it's not comprehensive. Work on a planned 20-mile elevated railway has literally just started.

3. The Aloha Economy. Among U.S. states, perhaps only Florida is as dependent upon tourism as an industry. Preliminary data for 2010  show that 7.082 million people visited Hawaii in 2010, spending $11.4 billion (that figure is up 16 percent from 2009). Some 98.6 percent of these tourists arrived by air. The state estimates that Hawaii's 2010 GDP was about $68 billion, which means tourism spending accounts for 17 percent of its economy. Rising oil prices hamper tourism by putting a crimp on discretionary income and by making it more expensive to arrive at destinations. Jet fuel, as The Economist points out, is 30 percent of airlines' overhead. In the face of spiking fuel costs, airlines like United,  American and Delta are trimming expansion plans, while others have been enacting  fuel surcharges or raising fees and fares across the board. The upshot: $100-per-barrel gas means it's more expensive to get to Hawaii and that tourists will have a bit less in their pocket to spend on luaus and leis when they get there.

4. The Electric Slide. Drive around Honolulu, Kauai and the Big Island (trust me, the research for this article was very arduous) and you'll notice plenty of solar panels on rooftops. Hawaii has an active solar industry, and the state is well along toward a goal of having 25 percent of energy sold by utilities in 2020 coming from renewable sources. But the state's dominant utility, Hawaiian Electric Company, largely makes electricity the old-fashioned way: by burning oil. The state notes that 75 percent of its electricity is derived from oil. In the fourth quarter of 2010, Hawaiian Electric paid $92 per barrel for fuel oil, up from $77 per barrel in the fourth quarter of 2010. For all of 2010, it spent $900 million on fuel oil, compared with $672 million in 2009; oil constitutes 40 percent of its operating costs.  This is part of the reason why Hawaii has very expensive electricity rates. Hawaiian Electric's rate table shows Oahu residents pay 22 cents per kilowatt hour, while residents on the Big Island pay nearly 33 cents per kilowatt hour. The Energy Information Administation reports that, last November, residential customers in Hawaii paid an average of 29 cents per kilowatt hour, compared with 11.7 cents per kilowatt hour in the U.S. as a whole. In Hawaii, then, higher gas prices have the effect of placing upward pressure on electricity rates that are already really high.

But don't shed too many tears for the residents of Hawaii. While electricity is expensive, many homes have little need for air-conditioning or heating, thanks to the temperate climate.

Plus, they get to live in Hawaii.

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