CA Adds Fuel To Raise Gas Prices—Again
California’s New Bureaucracy Will End Up Raising Prices
By The Wall Street Journal Editorial Board, April 2, 2023
A majority of Californians tell pollsters they don’t want Gov. Gavin Newsom to run for President. Maybe they think he’s pushing destructive progressive policies to promote his national ambitions, such as the law he signed last week to punish oil refiners.
The law establishes a new state bureaucracy empowered to cap gasoline refining profits. If refiners’ profits exceed the cap, they will pay a penalty, which will go into a special fund that legislators could use to “address any consequences of price gouging on Californians.” This is a fund for Democrats to buy votes.
Refiners will be required each day to turn over proprietary data so the state can investigate alleged fuel-market gaming. Irony alert: A leak of this confidential information would enable market gaming. The purpose of the law seems to be to deflect political responsibility for the state’s high gasoline prices, which are caused by climate rules and taxes.
Gas prices in California average $4.83 a gallon, which is $1.34 more than nationwide. When prices in the state surged above $6 last autumn, the difference was $2.50. Democrats in Sacramento order an investigation into “price-gouging” whenever gas prices soar above their usual inflated levels. But the investigations never turn up nefarious conduct.
That’s because high gas prices are caused by state policies. Taxes add about 66 cents to the price of a gallon in California, about twice as much as in other states on average. California’s cap-and-trade program and low-carbon fuel standard add another 46 cents a gallon. These regulatory costs are growing as the state tightens its CO2 emissions standards.
California also requires a special “clean” fuel blend that adds another 10 to 15 cents a gallon. Few refiners outside of California produce this unique blend. Many older refiners in the state are shutting down because of the high cost of regulation. Some are converting to producing biofuels, which are more profitable owing to federal and state subsidies.
The state lost 12% of refining capacity between 2017 and 2021 and is set to lose another 8% by the end of this year. This means California has a very tight fuel supply. Whenever one or more refineries have problems or undergo maintenance, prices spike. That’s what happened last autumn.
Yet Democrats accuse refiners of colluding to squeeze supply and inflate profits. There is no evidence of this, but Democrats insist they could prove misconduct with more data. Their new reporting regime and penalties will increase refiner costs, which will invariably be passed onto consumers. A profit cap will also discourage refinery investment and could cause more to shut down. Democrats know higher prices will be the result of their new law, which is why they are punting implementation to a new bureaucracy.