Before the Colonial Pipeline shutdown, the national average gasoline price had exceeded $3 a gallon for only two weeks since 2014. Yet in California, gas prices in recent years have rarely dropped below $3. They now average $4.18 a gallon—$1.14 more than the national average—and in recent months have increased more than prices nationwide. Why do California drivers pay so much at the pump? Blame a higher-octane blend of taxes and environmental regulations.
California has long imposed higher taxes on gasoline than other states, but in 2017 Democrats in the state Legislature raised the tax on each gallon by an additional 20.8 cents over three years. At the start of this year, California drivers were paying on average 63 cents a gallon in state and local taxes, compared with the 50-state average of 36.8 cents. California’s gasoline taxes are the highest in the country.
Democrats claimed the gas tax increase was needed to repair crumbling roads and bridges, but Gov. Gavin Newsom has ordered the proceeds to be directed toward projects aimed at reducing greenhouse gas emissions, such as bike lanes and mass transit. The state Department of Transportation recently reported the gas tax increase will provide enough to finance only half of its repair needs.
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The California Air Resources Board, or CARB, also imposes a de facto carbon tax through its cap-and-trade program. Since 2013, refiners, oil producers and manufacturers have been required to reduce emissions or buy credits to offset them. The program adds about 14.3 cents a gallon to the retail price.
CARB also requires gasoline retailers to sell a special extra-clean-burning gasoline blend, which adds another 10 cents a gallon to the price, according to University of California, Berkeley professor Severin Borenstein. In addition, CARB in 2011 implemented a low-carbon fuel standard, which requires refiners to reduce the “carbon intensity”—meaning total emissions from production, transportation, refining and combustion—of the gasoline they blend, expressed as a ratio of mass emitted to energy produced.
Under this convoluted program, CARB assigns carbon-intensity scores to hundreds of fuels. Saudi Arabia’s Arab Light crude rates 9.23, vs. 11.93 for West Texas Intermediate, 29.33 for California (the state’s biggest oil field) and 29.49 for Premium Albian Synthetic (Canada’s oil sands). Refining, transportation and vehicle combustion add another 90 or so to the carbon-intensity of these crudes. So gasoline produced from crude drilled in California’s Central Valley has a carbon-intensity score of 120. CARB has rated corn ethanol on average around 70 and biodiesel from cooking oil only 23.
CARB requires refiners to meet a declining average carbon-intensity score—90.74 this year—by blending more lower-carbon fuels. If they don’t meet the benchmark, they must buy regulatory credits, usually from renewable-fuel producers and electric utilities. The program has become an indirect subsidy for electric vehicles.
CARB awards regulatory credits to utilities whenever their customers charge electric cars at home. Utilities then can sell their credits to refiners. But they are required to use the money from their credit sales to subsidize electric cars. So Californians can get a $1,500 rebate from their local utility on top of $2,000 from the state and $7,500 from the feds for buying an electric vehicle. Sweet.
Yet drivers of gasoline-powered cars are subsidizing the utility rebates through higher fuel prices. As the state’s carbon-intensity benchmark has fallen, prices for regulatory credit prices have soared—from $17 on average in 2012 to $198 in the first quarter of this year. An analysis last fall by Stillwater Associates estimated that the program would add 24 cents a gallon to the price of gasoline this year and 63 cents by 2030.
The high costs of complying with the state’s low-carbon fuel standard is causing some larger refiners to switch to producing renewable fuels, which have become much more profitable due to regulatory and tax credits. S&P Global Platts data show that producers of West Coast renewable diesel make on average $5.53 per gallon including regulatory and tax credits—nearly three times as much as for regular diesel—while they would lose 27.5 cents a gallon without them.
Marathon Petroleum this spring announced plans to convert its large refinery in Martinez, Calif. to a renewable diesel plant. Phillips 66plans to overhaul its San Francisco refining complex to produce renewable fuels, including from grease, soybean oil and other cooking fats.
The result will be even higher gas prices for California drivers. Gasoline supply in California is usually tight because out-of-state refineries aren’t configured to produce CARB’s special fuel blend. Many refineries in the state have closed in recent years because of onerous environmental regulations. So whenever one or two large refineries experience a temporary outage, prices soar, often by 50 to 60 cents a gallon. Now California will lose two large gasoline-blending refineries permanently.
In sum, Californian drivers can soon look forward to paying more than $5 a gallon at the pump as the state’s green mandates ratchet up and gasoline refineries shut down or convert to renewable fuels.
While Californians sick of paying more than $100 to fill up their tank can move to another state, the refuge may prove fleeting. Progressives are clamoring for the Environmental Protection Agency to emulate California’s low-carbon fuel standard as a way to subsidize electric vehicles.
So enjoy your $3 gasoline. It may not last long.
Ms. Finley is a member of the Journal’s editorial board.
