Why Gas Prices Are So High in California and What Lawmakers Are Doing About It

© REUTERS / MIKE BLAKEGasoline prices are shown as they continue to rise in Carlsbad, California, U.S., March 7, 2022
Gasoline prices are shown as they continue to rise in Carlsbad, California, U.S., March 7, 2022 - Sputnik International, 1920, 18.03.2022
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California is notorious for its high gas prices, but this March it has reached new heights. As gas prices have skyrocketed across the United States, Californians have seen the prices at the pump outpace the rest of the nation.
The national average for a gallon of gas hit its highest levels ever in March, when it hit $4.33. Even as the rest of the nation has seen gas prices ease somewhat, down to $4.27, Californians are currently paying $5.80, according to the American Automobile Association (AAA).
A significant driver in the $1.53 gap between the national and California average is due to the state’s $0.51 gas tax. The per gallon tax is the highest in the country, but it doesn’t entirely explain the difference between California and the rest of the country.
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California is called a “gas island” because it doesn’t import oil through interstate pipelines. All of its gasoline must be produced in the state (California produces about 37% of its own gasoline) or imported using trucks and ships.
Environmental regulations and California’s cap and trade program also contribute to the cost, but a “mystery surcharge” may be a significant driver in fuel costs.
In 2015, an ExxonMobile refinery exploded in California, and increased prices relative to the rest of the nation as would be expected due to the state’s “gas island” status. However, when the plant came back online, prices never corrected.
The reason why has never been revealed. Severin Borenstein, who chaired an investigation into the price hike, told The Hill that they were “stonewalled by the oil companies.” While the root cause for California’s high gas prices is a multifaceted economic question, California's lawmakers are busy trying to ease the financial burden currently gripping their constituents.
There are two proposals by lawmakers to address the issue. One, proposed by State Republicans, is to offer a gas tax holiday. This would eliminate the $0.51 gas tax for six months. In theory, this should lower gas prices for the consumer by a significant margin. A tax holiday could also help decrease shipping costs, potentially bringing down the price of food and goods.
However, there remains no guarantee that companies will pass the entirety of the savings onto the customer.
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The tax holiday bill introduced by state Republicans stalled after Republicans failed to force a vote, but the idea is not completely dead. It is believed that state Democrats may need help passing their plan and could come with a smaller gas tax holiday as a compromise.
The second proposal, favored by State Democrats, is a $400 gas tax rebate. The check would not be means-tested, so every Californian who filed taxes would receive a check regardless of their income and even if they don’t own a car. Democrats argue that even if someone doesn’t drive, inflation and cost of living increases have put the pinch on everyone.
Sending a $400 check to every tax filing Californian would cost the state an estimated $9 billion, but California currently has a $45.7 billion budget surplus. Governor Newsom’s proposed budget could cut into that significantly. Even if he gets everything in the budget, California will still have a $20.6 billion budget surplus.
Democrats hope a deal will get done this week, with checks possibly sent out sometime during the spring. Newsom has expressed interest in both solutions.
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