Blame California Politicians for the State's Sky-High Gasoline Prices
Taxes and regulations pinch supply and hike prices at the pump.
If you've driven in California and pulled into a gas station to fill the tank, you know the Golden State's gasoline market exists in some realm parallel to but separate from the rest of the country, with fuel priced as if the place was the setting for a Mad Max movie (OK, some parts sort of are). As I write, the average price for gasoline in the U.S. is $3.17 per gallon, but Californians are somehow paying $4.53. Given the state just raised fuel tax rates, those prices aren't going down any time soon. In fact, Californians can blame state officials overall for the high cost of filling a car.
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Highest Gasoline Tax in the Country
"Californians pay an additional 72.4 cents per gallon at the pump attributable to state and local taxes and fees, which is the highest in the nation," according to the California Tax Foundation. "California's state excise on gasoline is 57.9 cents per gallon (as of July 1, 2023)."
Since that data was published, gas taxes have gone up further, most recently rising to 61.2 cents per gallon on July 1, up from 59.6 cents per gallon. The state's gasoline tax frequently rises since it's automatically adjusted for inflation every year. Ten years ago, it was 30 cents per gallon. And of course, prices at the pump rise accordingly.
But that's not all that happened on July 1 that's of interest to California drivers.
"On the same day, changes to the state's Low Carbon Fuel Standard (LCFS) were implemented, which will likely increase the cost of fuel even further," Kristian Fors and Sean Brenot noted for the Independent Institute. "The LCFS was approved in 2009 and requires bulk fuel suppliers to adhere to specific 'carbon intensity benchmarks.' To comply with these requirements, these sellers must reduce emissions from their supply chains or purchase credits from companies that sell lower-carbon fuels and generate LCFS credits."
Environmental Rules Drive Up the Price
The LCFS isn't a tax, as such, but it's a regulatory requirement that adds costs to the process of delivering fuel to consumers. That ultimately raises prices at the pump. Even before the recent regulatory change, the California Legislature's Nonpartisan Fiscal and Policy Advisor estimated that the state's "low carbon fuel standard program that requires suppliers of high carbon fuels (such as gasoline) to purchase credits from suppliers of low carbon fuels (such as renewable diesel)…currently adds 8 cents per gallon to gasoline prices."
Additionally, the Nonpartisan Fiscal and Policy Advisor emphasized that "the state's cap-and-trade program affects gasoline prices because it requires fuel suppliers to purchase permits that cover the greenhouse gases emitted when the fuel is burned. We estimate that this currently adds 23 cents per gallon to the price of gasoline."
Democratic Gov. Gavin Newsom's office says the revised LCFS could increase gasoline prices between 5 and 8 cents per gallon and that this is a good thing. But, as Fors and Brenot point out, the University of Pennsylvania's Kleinman Center for Energy Policy predicts that "retail gasoline price impacts could be $0.65 per gallon in the near term, $0.85 per gallon by 2030, and nearly $1.50 per gallon by 2035." Admittedly, that's a worst-case scenario. The Kleinman Center allows that the regulatory change could result in lower near-term price increases of 26 cents per gallon, rising to 60 cents per gallon by 2035. The governor's office denies this, implicitly conceding such high prices might be too much of a "good" thing.
Drawing on an earlier Independent Institute report, Fors and Brenot also caution that California has effectively walled its market off from fuel produced elsewhere. They write that, despite bordering other states from which fuel could theoretically flow to satisfy demand and lower prices, California policies have made the state an "island" because of "capacity constraints on California's pipelines and the state's stringent environmental fuel standards, which effectively require fuel to be refined in-state and limit the ability to import fuel from other regions."
Which is to say, California isn't some magic place where the laws of supply and demand work differently or not at all; it's an unfortunate jurisdiction governed by politicians who impose taxes and regulations that make life more difficult and increasingly expensive. Not that state officials are about to admit anything of the sort.
If There's Any "Price Gouging," It's by Politicians
Last fall, Newsom frantically insisted that "big oil companies are in cahoots with Donald Trump pushing prices even higher during election season."
In response, David Lightman observed for The Sacramento Bee that "there's no evidence that oil companies have engaged in any such quick price adjustments just before an election this month, or for that matter in this century."
Apparently, it doesn't even take an imminent election for companies to scheme. Months earlier, Newsom blamed California's high gasoline prices on "price gouging" by the oil industry. That was a year and a half after he signed a law that was supposed to end allegedly greed-driven price hikes by petroleum companies.
"Following record gas price hikes and profits, Governor Newsom signed his special session bill to hold Big Oil accountable," his office boasted on March 28, 2023.
To judge by his later claims, the legislation was ineffective. Really though, it was complete garbage intended to divert public attention from the impact of idiotic state policies on prices at the pump.
"Two years after California's Democratic leaders declared victory over big oil with a law aiming to crack down on industry profits, the state has been unable to prove companies engage in price gouging when the cost of gasoline spikes in California," Nicole Nixon reported in March of this year for The Sacramento Bee. In fact, she added, data showed that "two refiners had five consecutive months of negative margins, with losses ranging between nine and 44 cents per gallon."
No wonder petroleum companies have been closing refineries in California, further reducing supply in the closed market.
So, when you line up at the pump in California (I've seen people coast into Arizona on fumes to fill up on the cheaper side of the border), remember who lightened your wallet for you. You can blame California's political leaders.