Global conflicts, such as the ongoing wars in the Middle East and Ukraine, are driving up gas prices in California and across the nation. Adding to the issue, fossil fuel polluters are exploiting this situation to misleadingly attribute the rise in prices to California’s climate policies and public health regulations.
Contrary to these claims, California exhibits greater resilience to global price fluctuations thanks to robust initiatives like the Cap and Invest program and the careful allocation of its generated revenues. Over the years, California has made significant progress in decreasing fossil fuel dependency, with its energy grid, homes, and vehicles increasingly powered by clean, domestic electricity.
The continuation of California’s ambitious climate and clean energy policies, such as Cap and Invest, is essential for safeguarding the wellbeing and financial stability of its residents.
Global events, local impact
The war in Iran, though geographically distant from California, is a major factor contributing to the recent surge in gas prices affecting local drivers.
According to the U.S. Energy Information Administration, the price of crude oil, which constituted 55% of the cost of a gallon of gas over the past decade, is the largest factor in gasoline prices and their volatility.
California sources about a quarter of its crude oil from the Middle East, where multiple conflicts are affecting supply. Although the U.S. is a net exporter of petroleum, global market dynamics dictate that oil and petroleum product prices are spiking dramatically worldwide, regardless of origin.
This global volatility in crude oil prices is the primary reason for the extreme fluctuations in gas prices.
What else determines the price of gasoline?
While crude oil accounts for over half the cost of a gallon of gasoline, what comprises the remainder? The answer is both simple and complex.
In January, when the state saw gasoline priced at $4.01 per gallon, the crude oil cost was $1.60, with refining and distribution margins at $1.09, state and federal taxes and fees at $0.90, and environmental programs at $0.42. Though the arithmetic is straightforward, the refining and distribution margins conceal a mystery.
Since 2015, California consumers have been burdened with what Berkeley Professor Severin Borenstein identifies as the Mystery Gas Surcharge (MGS).
The MGS represents the price difference between California and the rest of the U.S. retail prices after accounting for taxes and other costs. Professor Borenstein’s recent analysis shows the MGS was “about $0.57 in Feb, before the attack on Iran. Based on AAA data, today it’s just over $1.”
While oil companies criticize the 42-cent environmental programs, the MGS is a larger, less transparent component of California gasoline costs that often goes unmentioned by these companies.
California’s rules protect air breathers and consumers
Decades ago, toxic air pollution, predominantly from cars and trucks, led to smog and a public health crisis in California. These concerns prompted Governor Ronald Reagan to successfully advocate for President Richard Nixon to allow California to impose stricter vehicle regulations than the federal government.
This authority laid the foundation for numerous regulations, making vehicles in California cleaner, more fuel-efficient, and eventually zero-emission. These measures reduced toxic air pollution and greenhouse gas emissions while significantly lowering the state’s gasoline dependency.
As a result, California’s gasoline demand has decreased by about 15% since peaking in 2005. This reduction not only benefits public health and the environment but also shields consumers from price volatility linked to global conflicts and extreme weather events.
The state’s gasoline consumption has declined from a peak of 15.6 billion gallons in 2017 to an anticipated 13.2 billion gallons in 2025. This reduction amounts to over 2 billion gallons of gasoline saved and $14 billion per year in spending avoided at the current price of $5.82 per gallon. On average, this translates into about 60 fewer gallons per Californian, equating to more than $350 in savings per person.
Despite this reduction in gasoline use, California’s economy has grown significantly, becoming the fourth largest economy in the world last year.
Keep capping and investing
While oil industry billboards around Sacramento may suggest otherwise, in contrast to the considerable and unpredictable costs associated with crude oil and industry profits, California’s Cap and Invest program adds only 25 cents to the gas price. Unlike crude oil prices and refiner margins, this program offers a stable and predictable cost that benefits Californians.
Cap and Invest, akin to setting up an automatic 401k contribution, is a sensible investment funding cleaner vehicles and related infrastructure, lowering electricity prices, and advancing climate solutions. These efforts collectively enhance California’s resilience to local, state, national, and global challenges.
On the other hand, soaring crude prices and refiner margins fill the oil industry’s coffers and finance misinformation campaigns against the state’s essential climate initiatives.
The California Air Resources Board is in the process of finalizing updates to the Cap and Invest program. It is crucial that this process proceeds without delay to ensure the state’s resilience against global supply constraints, challenging federal policies, and misleading polluters.
