Why is gas expensive in California?

Why is gas expensive in California?

David Paul Morris/Bloomberg/Getty Images

A customer fills up at a Chevron gas station in San Francisco, California, U.S., Tuesday, Nov. 21, 2023.


Angels
CNN

Gas prices in the United States have dropped from their all-time peak in the fall of 2022, but at least one state still has drivers using the pump.

Currently, the average price of gas in the United States is $3.10. In California, it’s $4.49, according to AAA.

It’s not an anomaly—Californians pay more for gas than the rest of the country. A combination of factors have combined to drive up gas prices in the Golden State, including environmental restrictions, high taxes and a declining number of regional refineries.

One of the more notable factors is that the state currently burns the cleanest gas in the world, according to Severin Borenstein, faculty director of the energy institute at the Haas School of Business at the University of California, Berkeley.

California has a unique fuel mix that emits fewer greenhouse gases when burned, Borenstein said.

California has historically led the way in reducing emissions. California is the only U.S. state that can set stricter emissions standards than the federal government, due to a repeal of the 1970 U.S. Clean Air Act.

It may seem strange that one state is given the power to set its own rules, while the rest of the United States must follow the standards set by the federal government or prefer California’s standards. But California has struggled with air quality problems for decades.

According to the California Air Resources Board, Los Angeles experienced its first “smog” episode in the summer of 1943. Visibility was reportedly extended to just three blocks, and Los Angeles residents were left with burning eyes, lungs and nausea.

California’s government went on the hunt to stop these once-called “gas attacks” that regulate the state’s power plants and oil refineries.

In 1966, California became the first state to adopt tailpipe emission standards, and in 1967, Governor Ronald Reagan approved the Mulford-Carrell Air Resources Act to combat pollution.

“We must constantly seek ways to improve our environment to match our technology and development,” Reagan said at the signing of the bill.

David Paul Morris/Bloomberg/Getty Images

Traffic on the 101 freeway in San Francisco, California, USA, Thursday, June 29, 2023.

California’s special gasoline blend comes from the state’s efforts to curb emissions. That adds about 10 cents of extra cost per gallon of gas, Borenstein said. The trade-off is cleaner air for California. “The reason you can see the mountains from Los Angeles now is because of the formula we started using almost 30 years ago,” he said.

“No one in the world is using it,” he said.

Although California’s pollution problem is improving, many California cities still rank among the nation’s most polluted, according to a recent study by the American Lung Association.

Hawaii is currently the only state with higher gas prices than California — but Hawaii’s geographic isolation plays a big role in the state’s higher prices among all states. California doesn’t have the same problem.

However, California gas prices hit record highs in the fall of 2022 after many refineries suffered outages.

The decline in the number of refineries in California is another reason for the widening gap between California’s gas prices and the rest of the country.

Today, there are only 11 major refineries that can produce gasoline that meets California’s specific environmental standards. Those 11 refineries produce 90% of California’s gas and diesel fuel, according to the California Department of Energy.

“The problem is that California is kind of isolated from the rest of the country in terms of demand for gasoline,” said Patrick De Haan, head of oil analysis at GasBuddy. “A declining number of refineries can produce to this specification.” And “if one of your refineries goes bankrupt, it’s a bigger problem now than it was decades ago,” he said.

The problem may be temporary, though: In 2022, California officially passed a law that would ban the sale of all new gas-powered cars by 2035.

But for now, many Californians need it they fill their cars with gas.

In addition to the bill at the pump, California motorists also pay the highest taxes in the nation, according to data compiled by the U.S. Energy Information Administration.

Drivers in California pay an excise tax and sales tax per gallon.

Double tax on gasoline sets California apart: Most states have no sales tax on gasoline.

Compare the current average gas price in California at $4.49, Texas at $2.75, Oklahoma at $2.66 and Louisiana at $2.78 in low-tax southern states.

But Borenstein has another theory about why gas prices are so high in California.

“California has fewer off-brand stations like Costcos and Safeways, but also Rotten Robbie’s,” Borenstein said. “Joe’s Fuel Stations.”

That’s because Californians are more loyal to brand-name oil like Chevron, Shell and Mobil, Borenstein estimates.

“I think part of the problem is that Californians don’t shop aggressively for gasoline,” he said.

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