Hey guys,

It’s Ericka again. I recently returned from a week in California where I got to spend some time with refinery workers in Los Angeles and also with my family a little further inland. Two big things stood out while I was there:

1. I think this was the first time in my life I’ve ever spent more than $6.00 per gallon for gasoline; and
2. Governor Newsom has got to be kidding if he thinks that CA policies aren’t largely to blame for the price disparity between California and the rest of the nation.

Two Friday’s ago, the governor held a press conference calling for a new tax on fuel refiners, suggesting that our industry is responsible for high gasoline prices and is “ripping off” drivers. Then this past Friday, he announced that a special legislative session will convene in December focused on gasoline prices and a possible new tax on California refineries.  

If the governor is serious about a solution to California’s prices, he should start by looking in the mirror… and then he should carefully read the California Energy Commission’s own take on the matter. They give a list of reasons (scroll down to “Factors Affecting CA’s Gasoline Prices”) why gasoline prices are higher in California than in the rest of the country—and even higher than in states like Arizona and Nevada that also source a lot of fuel from CA refineries. 

It’s a Sacramento surcharge, to be sure:  

• CA imposes higher taxes on gasoline than almost every other state   
  (almost 70-cents/gallon on top of the federal gasoline tax). 
• CA requires a boutique blend of cleaner-burning gasoline (more on that here) that is more expensive to produce (according to Wall Street Journal estimates, about 10-15-cents extra per gallon). It also mandates summertime gasoline (which is far more expensive than winter gasoline blends) for a longer stretch of time which is why Governor Newsom waived this regulation last week in an effort to cut costs. 
• CA environmental programs like the low-carbon fuel standard and cap-and-trade program inflate the cost of liquid fuels (the Wall Street Journal breaks it down here)   
  (according to the Western States Petroleum Association, each policy adds close to 25-cents per gallon to the cost of gasoline and diesel, so ≈45-50-cents in total). 
• CA (and much of the West Coast) is an energy island that cannot economically access fuel produced in other parts of the country. CA fuel demand is met primarily by refineries in state and is supplemented with some fuel imports. If CA facilities go down for safety reasons or unplanned maintenance their typical fuel production can’t be easily backfilled. Tighter supplies then get reflected at the pump.   

In just those first three bullets, CA policies account for about $1.30 of the prices drivers see at the pump. Beyond the easy math, the state policy environment also affects refining capacity and energy production in state, though every facility is different and may face unique costs. The governor and legislators in Sacramento have no one to blame but themselves for the policy predicament they’ve created. Windfall taxes are a political ploy, not a serious solution to the cost of driving in California.

Would love to know what you think about all this. Are there other CA-specific factors I’m not considering?

Ericka