Gas prices are soaring across the country, but especially in California. The Golden State average is now nearly $6 per gallon—40 percent above the national figure. That gap is likely to widen: UC Davis economists estimate that Californians could soon be paying more than $2.50 a gallon above the national average.
Unfortunately, California drivers are used to paying a lot at the pump. For years, state officials blamed oil companies. But a two-year investigation launched by Governor Gavin Newsom found no evidence of price gouging or market manipulation.
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The real driver is state policies that restrict supply, mandate costly compliance, and isolate the state’s fuel market from the rest of the country. If California leaders want to bring down gas prices, they should stop blaming others and start fixing their own bad choices.
More than half the cost of a gallon of gas in California comes from state-specific factors. Taxes alone account for a significant share: the state’s excise tax is roughly 70 cents per gallon, highest in the nation.
Environmental programs add additional costs. The state’s cap-and-trade program—now rebranded as “cap-and-invest”—adds roughly 20–30 cents per gallon, while the Low Carbon Fuel Standard (LCFS) contributes 17 cents.
Then there is California’s boutique gasoline blend. The state requires a specialized formulation to reduce emissions. That typically raises costs by 10 to 15 cents per gallon.
That special blend isolates California from the broader North American fuel market, since only a handful of refineries can produce it, and a lack of pipeline infrastructure limits imports from other states. When supply tightens, there are no easy substitutes.
That isolation grew even more consequential with the closure of two major refineries over the past year, eliminating roughly 20 percent of the state’s refining capacity. That was the result of regulatory pressure, high operating costs, and growing policy uncertainty. At the same time, demand has not fallen nearly as quickly as policymakers anticipated.
The refinery closures and special blend requirements have created a supply squeeze, meaning that even minor disruptions can send prices soaring. To fill the gap, California has increasingly turned to imports from overseas refineries in Asia or routed through intermediaries like the Bahamas. These imports are often more expensive and come with their own environmental trade-offs that undermine the rationale for the state’s stringent local standards.
In response to past price spikes, California enacted measures aimed at capping oil-company profits during periods of high prices and requiring detailed disclosures to regulators. Such policies discourage refineries from making long-term investments in costly infrastructure. The state has also continued to tighten its environmental mandates, increasing California’s exposure to supply shocks.
California has several policy options for bringing down fuel prices. First, the state should repeal or permanently reform the law that caps refiner profits during price spikes. While the state paused the caps last fall, the provision remains on the books, creating uncertainty that discourages long-term capital investment in new refining capacity.
Second, California should reform the LCFS, which is both costly and environmentally counterproductive, subsidizing biofuels that contribute to deforestation. Federal law actually already mandates biofuel use, so the LCFS duplicates existing requirements at extra cost. Reforming it would provide immediate relief at the pump.
Finally, California should embrace federal reforms that could ease supply constraints. Federal shipping restrictions under the Jones Act, for example, limit the ability to move fuel efficiently along the U.S. coast. A recent temporary waiver by the Trump administration allowed a foreign tanker to carry fuel from Washington to California. Loosening such constraints could help integrate California more fully into domestic supply networks.
California’s climate policies were intended to reduce emissions. Instead, they are limiting refining capacity and shifting production and emissions elsewhere. As long as California maintains a system that restricts supply, mandates costly compliance, and isolates its fuel market, drivers will continue to pay the price.