Don’t be alarmed by soaring California gasoline prices, which have topped $4 a gallon at most gas stations around the state. Gov. Gavin Newsom and Democratic legislative leaders are on the job, as they sniff out the culprit behind rising prices. They are pretty sure it has something to do with bad corporate behavior, based on their latest public statements. Stay tuned — but you might not want to buy that giant gas-sucking SUV just yet.
The cause of the high prices is obvious to those of us familiar with the state’s gasoline-related policies. In 2017, then-Gov. Jerry Brown pushed through his signature increase in gas taxes to fund the road-infrastructure improvements that his administration had neglected as it ramped up social spending. The law adds 12 cents to each gallon of gasoline and 20 cents to each gallon of diesel and could add far more to the price in coming decades.
Another obvious reason for high prices: California requires that only a special blend of low-emission gasoline be sold here, which has reduced competition by eliminating the possibility of gas sales from other states. It has left supply vulnerable to routine shutdowns, fires, and other problems at the handful of facilities that produce the specially formulated concoction.
Even a New York Times columnist figured it out: “You may already know that the primary reason gas tends to be more expensive in California is the state’s stringent gasoline standards, which require a cleaner fuel blend that only a few refineries outside the state can produce. So when work is stopped at any of the 10 major refineries within California, it can make a significant dent in the supply of gas, which causes prices to rise.”
Furthermore, the state’s cap-and-trade system, which caps the amount of greenhouse-gas emissions that manufacturers may emit, imposes a surcharge if companies exceed those limits. It also results in retrofitting costs as companies try to reduce emissions as the cap becomes more stringent year by year. Business groups argue that the system is little more than another California-only tax on the industrial sector. Those costs play out at the pump, too.
Then there are the run-of-the-mill, higher-than-most-places taxes. The state “imposes the second-highest gas taxes in the country,” explained Reason’s Christian Britschgi in a recent article, and assesses a state excise tax and a sales tax on top of that. California’s punitive regulatory climate increases overall costs for businesses, including refineries.
But in a letter in late April to California’s energy commission, Gov. Newsom demanded an explanation of the state’s high gas prices. He worried that concern over rising gas prices “undermine our clean air and safety standards.” That point is revealing: State officials will never pin the blame on anything that sheds poor light on their pet environmental and tax policies, even if those policies are the obvious cause of the high prices. It’s better to find a scapegoat!
“Independent analysis suggests that an unaccounted-for price differential exists in California’s gas prices and that this price differential may stem in part from inappropriate industry practices,” according to the governor’s letter. This refers to something that a Berkeley professor last year identified as a “mystery surcharge.”
The experts have added up the extra taxes the state imposes on gasoline, and affixed a price to the special fuel formulation and still can’t account for some of the differential between our state’s gas prices and prices elsewhere. It’s asinine. Since when can bean counters accurately account for every cent in the price of a commodity? The Western States Petroleum Association reminded Newsom and lawmakers, who sent an equally inane letter earlier this year, that prices are — sit down for this one — determined by supply and demand.
This smacks of some third-world autocracy, where officials storm around looking for the usual suspects even though their own fingerprints are all over the crime scene. “This mystery surcharge happens between the refinery and retail purchase by the consumer,” harumphed Assemblyman Marc Levine, D-San Rafael. “This is a punitive, abusive practice that Californians are paying.” Oh, please, make it stop.
Even if there were some nefarious mystery charge, it’s clear the governor and others are diverting attention to a small part of the problem while ignoring the main causes. That just happens to be the California state government. Of course, there’s no sense getting too annoyed at this farce given how California voters have behaved in recent years.
Orange County voters did recall a Democratic state senator who was a deciding vote on the latest gas-tax hike, but voters statewide rejected Proposition 6 in November, which would have rolled back the tax. They also elected Newsom and every Democrat on the statewide ballot — and gave Democrats much more power in the statehouse. If California voters are upset about gas prices and high taxes in general, they aren’t showing it.
So instead of a tax revolt, we’ll all watch a revolting display of grandstanding, as the new governor and his allies traipse around the state searching for the root causes of unaffordable gasoline even though they really are the ones to blame.
Steven Greenhut is Western region director for the R Street Institute. Write to him at firstname.lastname@example.org.
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Author: Steven Greenhut