Why Did Gas Prices Go Up in California?

Gasoline prices in California often exceed the national average. This disparity stems from specific factors unique to the state, including specialized fuel formulations, supply, and distribution challenges. Understanding these influences provides clarity on why consumers in California pay more at the pump.

California’s Distinct Fuel Requirements

California maintains stringent environmental regulations for gasoline, largely driven by the California Air Resources Board (CARB). These regulations mandate a unique blend of reformulated gasoline, known as CARB gasoline, designed to reduce air pollution and vehicle emissions. These standards are more rigorous than federal requirements.

Producing this specialized fuel requires specific refinery processes and significant capital investments. Not all refineries possess the necessary infrastructure to manufacture CARB-compliant gasoline, limiting the number of facilities capable of supplying the California market. This specialized production means California cannot simply import standard gasoline from other states to meet demand, creating a somewhat isolated “fuel island.” This contributes to higher manufacturing costs passed on to consumers.

State-Specific Taxes and Regulatory Fees

California imposes a range of state-mandated taxes and regulatory fees on gasoline, significantly increasing the price at the pump. The state excise tax on gasoline is 60 cents per gallon, primarily funding highway and road repairs. Gasoline purchases are also subject to state and local sales tax, which can range from 7.25% statewide and increase further due to district taxes, potentially reaching as high as 10.25% in some areas.

Additional costs are embedded in the price due to environmental programs like the Cap-and-Trade program and the Low Carbon Fuel Standard (LCFS). The Cap-and-Trade program, a market-based system, requires fuel suppliers to hold allowances for their greenhouse gas emissions, with costs often passed to consumers. The LCFS, designed to reduce the carbon intensity of fuels, also contributes to higher prices. Cumulatively, these state-specific taxes and fees can add approximately $1.29 per gallon to the price of gasoline.

Regional Supply and Distribution Limitations

California’s geographic isolation from major national pipeline networks means the state is heavily reliant on its own in-state refineries or marine imports for its gasoline supply. This limited connectivity means that disruptions to in-state production cannot be easily offset by supplies from other parts of the country.

The state’s refining capacity has declined. As of early 2024, California’s total petroleum refining capacity was around 1.68 million barrels per calendar day. Planned maintenance shutdowns and unplanned outages, such as those caused by equipment failures or fires, can significantly impact supply. When refineries go offline, even temporarily, the constrained market can experience pronounced price spikes due to reduced supply and the difficulty of quickly sourcing the unique California-blend gasoline from elsewhere. For instance, the closure of two major refineries by 2026 is projected to reduce California’s refining capacity by approximately 17%, potentially leading to increased price volatility and a greater reliance on imports.

Market Structure and Operating Costs

Operating a gasoline retail business in California involves higher costs compared to many other states. Elevated labor expenses, including minimum wage requirements and other employee benefits, contribute to the overall operational burden. Real estate prices for gas station properties are also substantial across the state, reflecting the generally high cost of land and commercial space in California’s populous areas.

Environmental compliance requirements for gas station infrastructure add another layer of expense. These include stringent regulations for underground storage tanks (USTs), which necessitate regular inspections, leak detection systems, and proper maintenance to prevent soil and groundwater contamination. These higher operational expenses for retailers, encompassing labor, real estate, and environmental compliance, are incorporated into the final price consumers pay at the pump.