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Q&A: Why are California gas prices $1.32 higher than the national average? 

With gas prices on nearly every driver’s mind, it’s time to revisit two age-old questions: Why do Californians pay so much at the pump? And where is the money going?

The answers lie in California’s complicated system of taxes and environmental regulations aimed at combatting climate change and keeping up repairs on roadways and bridges mixed with the state’s unique location on the energy map. This ends us costing drivers an extra $1.19 a gallon, according to one recent report, and sends billions of dollars each year into state coffers.

But there is also a mystery surcharge, sometimes called a “phantom tax,” that pushes gas prices even higher in the Golden State – and according to one analysis, it’s due to higher profit-taking from gas retailers.

Q. What taxes are Californians paying to fuel up?

A. It breaks down like this:

  • 51.1 cents — State Excise Tax: California’s state excise tax on gasoline is among the highest in the country and it adjusts annually for inflation. The tax rate is largely due to Senate Bill 1, often referred to as the “Gas Tax,” which passed in 2017 and raised the tax by 12 cents, to help pay for road and bridge repairs. In 2020 the tax started adjusting annually for inflation leading to a steady increase, although Newsom is looking to suspend the next inflation increase in July.
  • 18.4 cents — Federal Excise Tax: This is the gasoline tax paid across the country imposed by the federal government.
  • 3.7% — Average state and local sales tax: Local governments impose their own sales taxes on gasoline that vary from as low as 2.25% to as high as 5.75%, according to analysis from the state’s Legislative Analyst’s Office.

Q. What environmental fees are drivers paying at the pump?

A. Here’s how these fees add up:

  • 23 cents — Cap-and-trade program: A recent LAO analysis calculated that gasoline producers are passing along that cost to consumers as part of California’s cap-and-trade program, which requires companies to buy permits and credits to account for their greenhouse gas emissions.
  • 18 cents — Low carbon fuel program: This state program in effect since 2011 requires gasoline suppliers to purchase credits from suppliers of low-carbon fuels like renewable diesel.
  • 2 cents – Underground gas storage fee: This fee helps mitigate the impacts of leaks and other hazards caused by underground storage of gas.

Q. What is the “phantom gasoline” surcharge driving prices up even higher?

A. For years, there has been a 20- to 30-cent difference between the Golden State and the national average that analysts can’t seem to account for – but fingers are pointing to profit-taking by large gas station companies.

Shortly after his election, Gov. Gavin Newsom promised to answer the mystery, which cost motorists an additional $11.6 billion dollars over five years, according to an estimate from the state’s energy commission. In 2019 upon the state’s request for an investigation, the California Energy Commission provided an answer: “The primary cause of the residual price increase is simply that California’s retail gasoline outlets are charging higher prices than those in other states.”

Severin Borenstein, an expert on the bedeviling gas fee, said that California has a much larger price differential between name brand gas stations like 76 and Shell, versus local retailers like Rotten Robbie, indicating a higher level of profit-taking by these companies.

“That doesn’t mean the money is going to the [individual] operator of the station,” said Borenstein. “It’s very likely that much of it is going upstream to the brand, to the refiner and marketer.”

Q. Are there other reasons gas costs more in California?

A. The federal Energy Information Administration has one more reason California’s gas costs are so astronomical: Special fuel formulas

“California gasoline prices are generally higher and more variable than prices in other states because relatively few supply sources offer California’s unique blend of gasoline outside of the state,” the EIA states, meaning that the state is highly reliant on its local refineries, which need to at near full capacity.

“If more than one of its refineries experiences operating problems at the same time, California’s gasoline prices can increase substantially,” the EIA adds.

Q. If California is charging more to fill up, where does all that money go?

A. It mostly goes to thousands of roadway maintenance and improvements around the state, like adding additional lanes to highways, dealing with pesky potholes, and building a retaining wall on the rockslide-prone Highway 1. But there are also many other projects gas taxes and fees fund, including the beleaguered high-speed rail, zero-emission buses, safe corridors for schools, and other transportation infrastructure.

The 51 cent excise tax alone is expected to generate $6.8 billion from 2021 to 2022, according to the Legislative Analyst’s Office. Of that about $6.4 billion goes towards roadway projects while about $400 million is dedicated to public transit, bridge, and culvert repairs.

In the Bay Area, the money has gone towards dozens of projects, including a seismic retrofit of parts of I-880, roadway striping on I-280, and pavement rehabilitation on I-580.

The cap and trade program, which also includes non-gasoline revenue sources, is expected to generate $1.5 billion in revenue according to the governor’s latest budget – about 33% of that will go to funding a bullet train, now under construction in the Central Valley.

And the state’s low carbon fuel standard is helping fund rebates for electric vehicle purchases and are a key force in driving the adoption of low-carbon fuels, according to one report from UC Berkeley.

Q. Do Californians who drive the 1 million electric vehicles sold in the state get away without paying any gas tax?

A. Yes, for now. But they do pay an extra $100 registration fee to register their electric vehicles, and the state is studying alternatives to spread the burden more evenly for the upkeep of the state’s roads, including charging drivers a fee based on miles driven instead of a gas tax.

Source: Orange County Register

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