Why California gas prices are so high (taxes are just one of the reasons)

Eric Eisenhammer

Governor Gavin Newsom, a supporter of recently imposed gas tax hikes has now called for an explanation for the state’s high gas prices.

GasBuddy ranks California highest in the nation in gas prices, and among the country’s highest gas taxes are a major factor in why we pay so much at the pump – but there are other government policies that combine with these high taxes to make the situation even worse.

The price of gas impacts all Californians, whether you drive or not, but the poor and working poor suffer the most because they often must commute the longest distances and devote the greatest share of their household budget to fuel.

There are no simple answers to California’s high gas prices. The problem is multifaceted and includes, although is not limited, to the following issues:

  • Taxes

The gas taxes paid by Californians are among the highest in the nation, at over 70 cents a gallon, according to an analysis by the American Petroleum Institute. These taxes are meant to be used to maintain California’s roads. However, the state of our roads has clearly not benefitted from these high taxes. Studies rank California roads among the nation’s worst, billions in taxes intended for roads have been diverted to other purposes, and CalTrans has been the subject of investigations by the State Auditor over waste, fraud, and abuse totaling in the hundreds of millions.

  • Cap and Trade/Low Carbon Fuel Standard

California’s unique cap and trade program functions as an added hidden tax on fuel. The cap and trade tax is charged directly to fuel producers in the form of a “carbon credit” and/or low carbon fuel standard mandate, requiring biofuels be added to gas in the production process. The Sacramento Bee has reported this policy currently contributes 10-12 cents a gallon to the price of gas, but is expected to rise to as much as 36 cents a gallon by 2030 as California Air Resources Board officials increase requirements.

  • Limited Refinery Capacity

A challenging political and regulatory environment has caused many California refineries to shut down, making consumers more vulnerable to supply disruptions or unexpected increases in demand. According to California Energy Commission data discussed in an RBN Energy blog post, in 1982, when California’s population was almost half of its present 40 million, California had 40 refineries with a total 2.6 MMb/d of capacity. Today, there are 12 operating refineries with a combined capacity of 1.86 MMb/d. This capacity problem is compounded by the fact that the unique fuel blend required by California regulators effectively makes the state a “fuel island,” unable to accept refined fuel imports.

  • Production limits

While there are many benefits to producing fuel locally – job creation, tax revenue, energy security, and fewer emissions related to transporting fuel from far away – California policymakers have made oil and gas production challenging with excessive taxes and red tape. As a result, California oil production has dropped 36 percent since 2000 while many other oil producing states, such as Texas and North Dakota, have seen their production expand greatly. In fact, rather than taking positive action to correct this problem, many analysts believe Newsom might approve plans to halt California oil production completely.

Yes, indeed, let’s investigate California’s high gas prices. Newsom can start by reading this article and taking positive steps to address the four major problems described here.