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California’s historic price spike of $6.95 per gallon of gasoline explained

  • ASSOCIATED PRESS / MARCH 8
                                Gas prices are displayed at a Mobil gas station in West Hollywood, Calif. The average price for a gallon of gasoline in the U.S. hits a record $4.17 on Tuesday as the country prepares to ban Russian oil imports.

    ASSOCIATED PRESS / MARCH 8

    Gas prices are displayed at a Mobil gas station in West Hollywood, Calif. The average price for a gallon of gasoline in the U.S. hits a record $4.17 on Tuesday as the country prepares to ban Russian oil imports.

  • ASSOCIATED PRESS / MARCH 7
                                High gas prices are posted at a gas station in downtown Los Angeles, Calif. The price of regular gasoline broke $4 per gallon on average across the U.S. on Sunday for the first time since 2008.

    ASSOCIATED PRESS / MARCH 7

    High gas prices are posted at a gas station in downtown Los Angeles, Calif. The price of regular gasoline broke $4 per gallon on average across the U.S. on Sunday for the first time since 2008.

No matter how high gasoline prices may seem in most U.S. states, California has them beat. It almost always does.

The Golden State regularly endures the nation’s highest gasoline price. This month’s historic price spike, triggered by Russia’s invasion of Ukraine, has California drivers paying an average $5.57 for a gallon of regular, according to the AAA automotive service. Prices in some places reach nearly $7. The national average Wednesday topped $4.25, cheaper than California’s fuel by $1.32 per gallon. Governor Gavin Newsom, who acknowledged the problem in his annual State of State speech this week, is mulling a possible tax rebate to help drivers cope.

California was once one of the world’s biggest oil producers, and it’s still home to most refineries on the West Coast. But geography, taxes and environmental regulations — first to fight smog, then global warming — have combined to keep prices there far higher than in the rest of the country. And critics eagerly point out the role that California’s own decisions have played. There is “a whole host of policies” that California consumers pay for that others don’t, Chevron CEO Michael Wirth said at CERAWeek by S&P Global in Houston this week.

CHECK THE MAP

Mountains and desert cut off California from most of the U.S., and from the web of pipelines that fans out from country’s main refining hub on the Gulf Coast. So the state, which still has active oil fields concentrated in its Central Valley, historically pumped and refined most of its own fuel, while helping supply neighboring states.

Cities including Los Angeles grew up within valleys hemmed in by mountains that trapped car exhaust and made the state synonymous with smog. So in the 1990s, state officials ordered refineries to start making cleaner-burning fuel blends. It worked, helping clear the air, but with an unintended side effect. By requiring the nation’s cleanest fuel, California cut itself off from the national gasoline fuel market, becoming a kind of energy island. If one or two of the state’s refineries suffer an accident or need unexpected maintenance at the same time, prices jump.

TAXES, AND MORE TAXES

Deep-blue California isn’t shy about imposing taxes, and gasoline is perhaps the most visible example. It has the country’s highest tax burden on gasoline sales, according to the American Petroleum Institute oil-industry lobbying group. State and local taxes add up to 61 cents on every gallon, according to the California Energy Commission, and federal excise taxes add another 18 cents. Most of the revenue goes to road repair.

FROM SMOG TO CLIMATE

California has made the fight against global warming one of its core policies, and that directly affects gasoline. Oil companies must participate in the state’s cap-and-trade carbon market, which sets a limit on the amount of greenhouse gas emissions allowed each year and forces companies to buy a permit — called an allowance — for each ton of carbon they emit. They’re also subject to the low-carbon fuel standard, a policy meant to lower the carbon content of fuel, primarily by blending more renewable fuels into their products. Costs of both get baked into retail gasoline prices, although they’re difficult to track.

Based on recent spot-market prices, cap and trade add as much as 19.8 cents per gallon, while the low-carbon fuel standard tacks on another 14.9 cents, according to energy and commodity price reporting agency Argus Media.

SHRINKING SUPPLY

California’s government has pushed hard to encourage the switch to electric cars and recently become the only state with more than a million plug-in vehicles. At the same time, gasoline refining in the state has been shrinking, The West Coast lost around 9% of its capacity between April 2020 and November 2021, according to EIA data. Pending local permits, a small portion might come back in the form of renewable diesel. But the gasoline shortage will continue to grow, and high prices will persist, said John Auers, executive vice president at energy consultant Turner Mason. California’s policies are “hostile to refining,” and “capital investment in refining is next to impossible,” he said.

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