The cost for a gallon of gasoline in California is going up — but whether it’s increasing just a little bit or an awful lot is a hot-button political topic.
One price bump is definitive, and it went into effect Tuesday.
July 1 marked the start of the new fiscal year and the state’s gasoline excise tax ticked up from 59.6 cents to 61.2 cents, an increase of 1.6 cents per gallon.
As per Senate Bill 1, which the Legislature in Sacramento passed and then-Gov. Jerry Brown signed into law in 2017, the excise tax on motor vehicle fuels gets adjusted each year for inflation.
Formally called the Road Repair and Accountability Act, the SB 1 gas tax expects to raise $52.4 billion over 10 years. More than $3.2 billion per year will go to the Road Maintenance and Rehabilitation Program that includes $400 million for bridges and culverts, $200 million for local entities and $100 million for bicycle and pedestrian projects.
Since 2018, the gasoline excise tax has gone up 20 cents.
California has the highest excise tax on gasoline in the country. Pennsylvania comes in second, charging 57.6 cents per gallon.
Other factors that may lead to higher gasoline prices are less clearly known.
Updating a state regulation
The California Air Resources Board, or CARB, recently approved an update to the state’s Low Carbon Fuel Standard.
Created in 2011, the standard — called the LCFS —has established a credit-trading program that makes transportation fuels such as gasoline, diesel and aviation jet fuel become less polluting over time.
Fuel producers that don’t meet the requirements must buy credits from those who do, thus providing companies an incentive to develop cleaner fuel options. CARB says more than 31 billion gallons of petroleum have been displaced by low-carbon fuels, including 5 billion gallons in 2023 alone, as part of the state’s efforts to transition from gasoline-powered cars to electric vehicles.
But strengthening the standard affects the credit prices in the LCFS, which then influences fuel prices. After months of back-and-forth with CARB, the state’s Office of Administrative Law recently gave the green light to implement the amended Low Carbon Fuel Standard, effective July 1.
What will it mean for gas prices? That’s up for debate.
In September 2023, CARB staff released a 175-page assessment of the impacts of passing stricter requirements. It included a table that projected a potential increase in the price of gasoline of 47 cents per gallon in 2025 (and 59 cents for diesel and 44 cents for fossil jet fuel).
CARB officials later backtracked, saying the figures were not explicit predictions of where gas prices would go, and asserted the LCFS historically accounts for just 8 to 10 cents of what consumers pay per gallon.
Last autumn, climate economist Danny Cullenward wrote a paper for the Kleinman Center for Energy Policy at the University of Pennsylvania that said if LCFS credit prices reach their maximum allowed levels, “then retail gas prices impacts could be” 65 cents per gallon in the near term, 85 cents per gallon by 2030 and nearly $1.50 per gallon by 2035.
But in the next paragraph, Cullenward said LCFS credit prices “are fundamentally uncertain and could easily be lower.”
In an interview this week with the Union-Tribune, Cullenward said current credit prices have indeed dropped to the point where “I don’t expect there to be a difference in cost that’s at all visible to drivers next month.”
But at the same time, Cullenward expects that will change.
“We’re facing headwinds on electric vehicles and the (LCFS carbon) intensity targets on paper are going to ratchet up quickly,” he said. “So I think the potential for significant retail price impacts is really quite significant in the years ahead.”
In a separate analysis, Colin Murphy of the Low Carbon Fuel Policy Research Initiative at UC Davis, estimates the updated LCFS will result in a net addition of 8 to 9 cents per gallon to the price California drivers.
“Nobody’s got a good model for precisely predicting credit prices,” Murphy said, “So I took my judgment, based on having primarily worked on the LCFS for about 10 years now, and created a range of likely credit prices” to make his estimation.
But Murphy has a more optimistic view in the long run.
Since the charges the LCFS places on high-emission fuels like gasoline make low-emission fuels like renewable diesel and electric cars cheaper, Murphy said the net cost of drivers in the long run “is zero, apart from administrative costs, which are a tiny fraction of total revenue flowing through the program.”
Refinery shutdowns loom
Last fall, Phillips 66 announced it will shut down its twin Southern California refinery facilities in Carson and Wilmington by the end of this year. In April of this year, Valero said it plans to close its refinery in the Northern California city of Benicia in 2026.
The CEO of the San Antonio-based company said, “California has been pursuing policies to move away from fossil fuels for the past 20 years, and the consequence of that is the regulatory and enforcement environment is the most stringent and difficult of anywhere else in North America.”
The two refineries account for roughly 20% of the state’s crude oil capacity, leading fuel analysts to raise concerns that the closures will squeeze supplies of the specially blended gasoline that is sold to California drivers.
Gov. Gavin Newsom, who accused oil companies of “ripping off” customers when gas prices spiked in 2022 and 2023, appeared to take a much more conciliatory approach to industry after the refinery announcements.
Newsom sent a letter to California Energy Commission, directing the agency to “redouble the state’s efforts to work closely with refiners” to help ensure Californians have access to transportation fuels such as gasoline in the short and long term.
Energy commission vice chair Siva Gunda responded last week, with a host of recommendations. Among them: Suspending a provision in a recently-passed state law that could slap financial penalties on oil companies if the commission deemed they made excess profits at the pump.
The 24-page letter included calls to cut red tape to boost in-state oil production and streamlining efforts to enhance imports of crude from foreign countries.
“The problems laid out in this letter are complex but solvable,” Gunda wrote, but the tone was sobering.
“Gasoline imports statewide could increase to 25-30% of demand by the summer of 2026, and up to 50% in the northern California region” after the Valero and Phillips 66 closures, “bringing risk of supply disruptions and price volatility.”
Gunda, joined by CARB chair Liane Randolph and California Natural Resources Agency secretary Wade Crowfoot, had a briefing with reporters the day the letter to Newsom was sent.
“The gist is, we get it, we understand concerns that Californians have about gas prices,” Crowfoot said. “On the one hand, our state residents have made it very clear that they want us to transition to clean our energy and transportation … but on the other hand, we need to maintain affordability.”
A spokesperson for Newsom told Associated Press the governor will review the recommendations and “advance solutions that maintain a safe, affordable, and reliable supply of transportation fuels for California.”
War of words
In the meantime, politicians are firing verbal shots at each other.
Republicans say Newsom and policies backed by Democrats, who have a supermajority in Sacramento, have slashed oil production in the Golden State and made gas too expensive.
Senate Republicans introduced a bill to repeal the LCFS update. After it did not get out of committee, Senate Minority Leader Brian Jones, R-Santee, tried to force a floor vote but 23 Democrats voted no.
Jones has since called for an independent audit of the Air Resources Board for what he called “a secretive overhaul” of the LCFS, alluding to the potential 65-cent increase mentioned in Cullenward’s paper, if credit prices reach their maximum allowed levels.
“With these new state-imposed costs, fuel prices are expected to spike unpredictably throughout the summer and the foreseeable future,” Jones said in a news release Tuesday. “People need to prepare.”
Newsom’s office has countered, blasting what it called “a swirl of misinformation” and “disingenuous claims … about California gas prices ‘set to soar.’ “
“Trump’s tariffs and policies impacting the price of crude oil stands to swing gas prices far more than any state policy,” the release said.
Murphy of UC Davis said “there’s just no evidence to suggest that the (LCFS) credit price is going to rise in any real significant fashion, much less anywhere near the price ceiling where you start getting those 65-cent per gallon impact.”
At least for now, California gas prices have remained steady, despite hostilities between Israel and oil-rich Iran, and strikes by the U.S. military on Iran’s nuclear facilities on June 22.
The average price for regular in the San Diego area has dropped 7 cents a gallon in past three weeks, according to AAA. Fuel analysts say recent boosts in gasoline supply to California from Asia and other factors have thus far kept costs under control.
But California gas prices remain the highest the country. The average price for regular in the Golden State stood at $4.581 a gallon on Tuesday, which is $1.40 higher than the national average.
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