Why Gas is Expensive in California

Why is Gas Expensive in California?
Why is Gas Expensive in California?

Last updated on December 6th, 2022 at 10:02 am

In October 2022 while the cost of gas was almost $7 in Los Angeles and some cities in California, President Joe Biden sparked reactions through his controversial statement.

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The President was trying to defend why gas is expensive in California, so, he said it has always been the case in LA.

“Well, that’s always been the case here. You know…nationwide, they came down about $1.35 & they’re still down over a dollar. But we’re going to work on — housing is the big — is the most important thing we have to do in terms of that.”

@JoeBiden
Gas Price in California United States

Why gas prices are so high in California

Even though many argue that the cost of gas has got nothing to do with housing, there are some factors that are responsible for the high cost of gas in California, the US’ most populated state.

To many outside the state, one might want to ask: Why is gas $3.135 in Mississippi compared to CA’s $5.252?

Here are the main factors why gas is more expensive in California than in other states across the U.S:

Second-Highest Gas Tax

The Golden State has the second highest gas taxes in the United States, charging an extra 51 cents for every gallon of gasoline.

But then, gas taxes may not always be the reason for the high price of gas, for instance, Alaska charges the lowest gas tax (8 cents per gallon), but the Last Frontier State has the fifth highest gas prices.

Higher Gasoline Importation

There are no interstate fuel pipelines in California that could bring in gasoline from refineries. The state produces about 30 per cent of its gasoline which is not sufficient for its population.

To avoid a gas crisis or shortage, California relies on finished product gasoline imports using trucks and ships, thereby raising the price of transportation. The final consumers bear the transport cost.

The strictest regulation is expected to begin by 2035 when gasoline-powered cars will be phased out of California.

In a move to drastically reduce demand for fossil fuel, the state Governor Gavin Newsom called it “Fight Against Climate Change”

The new executive order means by 2035, sales of all new passenger vehicles will be zero-emission to eliminate harmful emissions from the transportation sector.

But the governor was forced to relax his own goals for reducing climate pollutants in October by relaxing the refinery rules, Desert Sun reported.

Newsom temporarily called on oil refineries to start selling more polluting winter-blend gasoline to ease soaring fuel prices when the gas price was $6.39 on October 7, 2022, while the national average price was  $3.89.

Strict Environmental Regulations

California’s strict environmental regulations are designed to reduce, at all costs, the carbon emissions and air pollution generated by gasoline.

In 1965, California is the first U.S state to regulate vehicle exhaust by setting limits on hydrocarbons and carbon monoxide emissions, according to the National Library of Medicine (NLM).

In 1967, California Air Resources Board (ARB) was formed by signing into law the Mulford-Carrell Act by Governor Ronald Reagan.

ARB which is now part of the California Environmental Protection Agency (CalEPA) sets air quality standards for total suspended particulates, photochemical oxidants, nitrogen dioxide, and sulfur dioxide among other pollutants.

Because of environmental regulations, gas stations are compelled to sell a special reformulated blend of fuel that is costlier to produce.

In the long run, the environmental regulations add another 76 cents per gallon to the price of gas, thereby pushing the cost of gas price higher than what consumers get in other states like Mississippi, Kentucky, and Nebraska among others.

Strategic Maintenance of Refineries

There are also insinuations that refiners in California planned maintenance on purpose to drive up the price of gas.

On top of that, refineries in CA are not producing at maximum capacity, meaning the few ones in active production could drive the price up.

Jamie Court of Consumer Watchdog told ABC10,  “When you have five refiners that make 97% of our gasoline, they can control the supply to drive up the price, and they are limiting supplies to drive up the price.

Solution to the cost of gas in California

Removing or reducing gas taxes in the Golden State, according to a commenter on YouTube, would automatically bring down the price, “Eliminate the taxes on gas and it will be under $4.00”

While some analysts believe that the high taxes in California is why gasoline is expensive in the state, the governor held oil companies responsible.

He stated, “They’re ripping you off” and plans to introduce what he calls Windfall Profit Tax.

We’re calling for a windfall profits tax, and I’m calling for a special session on December 5. It’s time to get serious, I’m sick of this,” Newsom said in October 2022.

What does CA Windfall Profit Tax mean?

Windfall profit tax means oil companies in CA will be taxed more whenever they made more profit and return the money in some way to the consumers.

Morgan Rynor of ABC 10 in a report explains:

“Any time an oil company charges way more than the actual price of crude oil than the oil company is taxed and that money is supposed to go back to the consumer.”

The law is expected to receive a boost when lawmakers return to the Capitol by January.

But oil industry representatives in the state said regulations cause higher prices in California than in the rest of the U.S.

Gas Price in California

On AverageGasolineDiesel
Current$5.205$6.160
Yesterday$5.252$6.184
Week ago$5.423$6.265
Month ago$5.787$6.486
Year ago$4.706$4.833
Source: AAA

Note: The price of gas changes every 24 hour.

Conclusion:

Gas prices are expensive in California because the state has relatively few local refineries.

The Golden State has the second highest gas tax, according to the Tax Foundation, meaning the cost of importing refined crude oil from outside the state will be transferred to the final consumers.

Windfall Profit Tax, as planned by Governor Newsom, is more likely to trigger price hike.

As you try to adjust your financing, it is important to take measures to protect your credit card against card skimmer at the gas pump.

References:

  1. AAA. “Gas Prices in California”. aaa.com
  2. Kathleen Ronayne (October 1, 2022). “Gov. Newsom relaxes refinery rules as California gas prices soar”. desertsun.com
  3. Richard Allyn (October 7, 2022). “A breakdown of the taxes and fees in California gas prices”. cbs8.com
  4. Chris and Laura (October 2022). “Gov. Newsom wants California oil companies to pay ‘Windfall profit tax’ for price gouging”. ABC10
  5. California Government (September 23, 2020). “Governor Newsom Announces California Will Phase Out Gasoline-Powered Cars & Drastically Reduce Demand for Fossil Fuel in California’s Fight Against Climate Change”. gov.ca.gov
  6. NIH (March 2007). “ENVIRONMENT: California Out in Front”. ncbi.nlm.nih.gov
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