Why Is Gas in California So Expensive?
Uncover the multifaceted factors driving California's elevated gas prices, including distinct state policies, limited supply, and economic forces.
California consistently experiences significantly higher gasoline prices compared to the national average. This disparity stems from a combination of factors, including the state’s unique regulatory environment, its taxation policies, limitations of its refining infrastructure, and underlying market dynamics.
Unique Fuel Standards
California mandates stringent environmental regulations for gasoline formulation, which contributes to higher production costs. The California Air Resources Board (CARB) establishes requirements for specific “cleaner-burning” fuel blends. These unique specifications mean gasoline sold in California must undergo more complex processing and often requires more expensive blending components than standard gasoline.
This specialized fuel limits the number of refineries capable of producing it, primarily confining production to in-state facilities. This exclusivity reduces the overall supply pool and increases reliance on fewer producers. For instance, the Low Carbon Fuel Standard (LCFS) adds a significant cost to each gallon. These unique fuel formulations, including seasonal blends, can add an estimated 12 to 18 cents per gallon to the wholesale cost.
State and Local Taxes
Gasoline prices in California are substantially impacted by state and local taxes, which are among the highest in the nation. As of March 2025, drivers in California pay approximately $0.90 per gallon in combined federal, state, and local taxes and fees. This total significantly surpasses the national average.
The federal excise tax on gasoline is a uniform $0.18 per gallon across all states. California’s state excise tax, about $0.60 per gallon, is the highest in the United States, exceeding the national average of $0.28 per gallon. A state sales tax of $0.10 per gallon and an underground storage tank fee of $0.02 per gallon further augment the price. California’s Cap-and-Trade program imposes costs on fuel suppliers for carbon emissions, which are passed on to consumers and can add $0.24 per gallon. Local and county taxes add approximately 3.07% to the overall cost.
Refinery Constraints and Supply
California’s unique geographic and infrastructural characteristics contribute to its elevated gasoline prices, effectively creating a “fuel island.” The state has limited pipeline connections to other regions, making it heavily dependent on gasoline produced by its in-state refineries. Over 90% of the gasoline consumed in California is refined within the state.
This isolation means that during periods of unexpected refinery outages or maintenance, the state cannot easily import replacement supply from other parts of the country, leading to extended price spikes. The number of operational refineries in California has declined from 43 to 14, with only 11 major facilities producing transportation fuels that meet the state’s environmental standards. This reduction in refining capacity (a 9.8% decline between 2019 and 2022) creates a tighter supply market. The impending closures of two significant refineries, one in Southern California by October 2025 and another in Northern California by April 2026, are projected to reduce in-state gasoline production by approximately 20%. Maintaining and upgrading existing facilities also presents challenges due to strict environmental regulations and high operating costs, further impacting supply stability.
Market Forces and Demand
Market forces and consumer demand also play a role in California’s high gasoline prices. The state’s large population density translates into substantial demand for fuel, and this demand is relatively inelastic, meaning consumption does not significantly decrease even with price increases. This high demand, coupled with the “fuel island” effect, creates a market dynamic where supply disruptions can have an outsized impact on pricing.
The limited number of refineries and suppliers capable of producing California’s specialized fuel contributes to less competitive pricing. With fewer major players, there is less downward pressure on prices that might otherwise exist in a more diversified market. This market structure can lead to situations where minor disruptions in supply, such as a refinery experiencing an unexpected shutdown, can result in significant and prolonged price spikes. Past analyses have pointed to a “residual price increase” or “mystery surcharge,” suggesting that market conditions in California may allow manufacturers to charge higher prices.