California Has a Gas-Price Mystery: Too High, but Why?

Drivers in the most populous U.S. state are paying more at the pump than anyone else. California’s gas taxes and its strict clean-air policies don’t explain away all of the $1.23-a-gallon difference.

By Jinjoo Lee of The WSJ. Excerpts:

"California’s retail gas price was $4.32 a gallon in December 2022, while it was $3.09 a gallon on average elsewhere in the U.S. That is a $1.23-per-gallon difference. 

There are some quantifiable sources of the California premium. Higher state gas taxes are one reason. The state’s clean air policies are another. These include a cap-and-trade program for greenhouse-gas emissions, a low-carbon fuel standard and a fee for the abatement of leaking underground storage. California also mandates a cleaner-burning gasoline, which adds around 10 cents a gallon.

Tally all of those California-specific costs up, though, and it comes out to about $1.09 a gallon, or 80 cents more than what the average state gas tax is elsewhere in the U.S., according to calculations by Prof. Severin Borenstein at the University of California Berkeley’s Haas School of Business, based on the monthly average for December 2022. But that still leaves a 43-cents-per-gallon difference not explained by California-specific tax and air policy-related costs. Mr. Borenstein was a member of a committee that the California Energy Commission assembled in 2014 to better understand fuel-price fluctuations."

"There is less competition among California’s retail fuel stations compared to other states."

"Fuel margins at California’s gas stations were about 79 cents a gallon on average in 2022, 79% higher than the 44 cents-a-gallon nationwide average"

"Why wouldn’t fat margins attract more new gas stations? Part of it could be that California’s state-level policies all point toward a faster transition away from gasoline. Opening a new gas station looks unappetizing, and some cities aren’t even allowing it."

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