Why are Californians paying more for gasoline than anyone else?
California’s gasoline prices are consistently much higher than the national average for three big reasons: Taxes, environmental laws and location.
“California requires a special blend of gasoline to reduce pollution,” said Sung Won Sohn, president of SS Economics, a consulting firm in Los Angeles.
“Of course,” he added, “California is known for high taxes, including on gasoline. “
California’s gasoline prices Tuesday averaged $5.44 a gallon Tuesday, well above the national average of $4.17, AAA reported.
The latest price, spurred by skyrocketing crude oil prices, is up a dime from Monday, 61 cents from a week ago and $1.72 a year ago.
“California gasoline prices are generally higher and more variable than prices in other states because relatively few supply sources offer California’s unique blend of gasoline outside of the state,” says the federal Energy Information Administration.
Experts offer three main reasons for the big gap between California and the rest of the nation:
Taxes
Motorists pay 86.55 cents per gallon in state and federal taxes and fees in California, well above the rates paid in any other state, according to the American Petroleum Institute. Next highest is Illinois at 78 cents. The national average is 57.09 cents.
California’s fuel taxes have gone up with the cost of living, but Gov. Gavin Newsom has proposed no increase this July, when the next increase would take effect. Even so, those increases have only boosted taxes slightly.
California’s per-gallon gasoline tax rose to 51.1 cents a gallon July 1, up from 50.5 cents. The other taxes are federal taxes and fees.
Environmental and other laws
“California’s reformulated gasoline program is more stringent than the federal government’s program,” the federal Energy Information Administration explains.
As a result, it says, “California gasoline prices are generally higher and more variable than prices in other states because relatively few supply sources offer California’s unique blend of gasoline outside of the state.”
In order to help control pollution, California gasoline has to use a different formula when the weather is expected to be warmer.
Other strict California laws also contribute to the higher prices.
“There’s a huge cost to any controls you put in place, and California is where you get a tremendous number of controls,” said Sanjay Varshney, professor of finance at California State University,Sacramento.
The state may pay a higher minimum wage than other states, for instance.
Location
“California refineries need to run at near full capacity to meet the state’s gasoline demand,” the federal Energy Department says.
But if more than one of the refineries has operating problems at the same time, “California’s gasoline prices can increase substantially.
“Even when supplies are available from other West Coast refineries, U.S. Gulf Coast refineries, or from foreign refineries, they can take a relatively long time to arrive in California,” it explained.
Doing business in California simply costs more, and that too adds to the price.
“California is just a very expensive state all the way around,” said Varshney.
This story was originally published March 8, 2022 at 11:41 AM with the headline "Why are Californians paying more for gasoline than anyone else?."