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Taxes, ‘mystery’ surcharge intensify Californians’ pain at the pump

(The Hill) – California has the most expensive gas in the nation, reaching an average statewide price of $5.44 per gallon early in March even as the nationwide average set a record of $4.173.  

Experts say the higher prices are due to a unique combination of emission regulations, higher gas taxes and the Golden State’s status as a “fuel island.”  

The U.S. has grappled with record inflation and rising oil and gas prices in recent months despite a rapid economic recovery. President Joe Biden warned earlier this month that the issue of high fuel costs would be exacerbated after the U.S. banned oil imports from Russia amid its invasion of Ukraine. 
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Oil prices have decreased recently, an event that suggests relief for consumers at the pump will occur in the weeks ahead. But prices have continued on an upward trend in Southern California in particular.  

The gas price in Los Angeles County increased from $5.876 a gallon to $5.890 a gallon between Wednesday and Thursday, according to AAA data, marking the 23rd consecutive day of county-level cost increases.  

The trend has continued across California as well, increasing statewide from an average of $5.694 a week ago to $5.785 Thursday.  

A number of factors contribute to the particularly acute pain at the pump in the state, according to economics and energy policy experts.  

“First, taxes are higher generally in California, so the gas tax itself is higher,” Sanjay Varshney, a professor of finance at California State University, Sacramento told The Hill. “Number two, California environmental and emission laws are tougher, so the mix required [for] gasoline tends to be more expensive.”  

Another key factor is that the state is a fuel island, or a location that does not receive any fuel through interstate pipelines, according to Kevin Slagle, vice president of strategic communications at the Western States Petroleum Association. The state’s fuel supplies are either produced in-state or shipped by ship or truck, costlier methods that are passed onto consumers.  

In-state production covers about 30% of the state’s fuel needs, Slagle said.  

“The other 70% or so is imported from around the world, some from Alaska, but really mostly from the Middle East, Ecuador, countries like that,” he said. “So we have a situation where our… supply is limited by what we can produce in-state [and] we’ve had production drop quite a bit over the last five or six years.”  

Slagle added that the state also currently has a major production permitting backlog, leading to what he said was the “worst-case” scenario under the state’s regulatory environment.  

“We’re just not being issued permits,” he said. “So a fix we could see is … let’s get the permits offered to us, get them in the field, let us produce, so that a few months down the line, we’ve started to increase production.”  

“Why wait for another crisis to deal with when you have a production solution that’s readily available?” he added.

There’s one more confounding factor, according to Severin Borenstein, faculty director of the Energy Institute at Haas at University of California Berkeley: “The mystery gasoline surcharge, which is the additional amount that appeared in 2015 and has never disappeared.”  

That surcharge, Borenstein said, appeared shortly after the 2015 explosion of an ExxonMobil refinery in Torrance, which caused prices in the state to surge relative to the rest of the nation, and which remained after the refinery came back online.  

“The state has done a half-hearted investigation and not really figured out why this has happened,” he said.

Borenstein said that according to his own running calculation of the cost of the surcharge, it averaged some 30 cents a gallon in 2021, or approximately $4 billion a year.  

On a cent-by-cent breakdown of gasoline prices, the surcharge accounts for about 30 cents, and 10 cents for the cleaner-burning gasoline mixture, according to Borenstein. Higher state taxes account for about 75 cents.  
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“We also have a cap and trade program, which these days is adding about three cents. And we also have a low carbon fuel standard, which these days is adding about 14 cents,” he added.  

In the meantime, experts said possible policy solutions to these issues are a daunting prospect. While several states have recently suspended their gas taxes or proposed to do so, there’s little political will for such a move in California, according to Varshney, who noted that a bill in California’s Assembly to do the same was defeated this week.  

On Thursday morning, legislators proposed a different form of relief, introducing a bill to provide $400 tax rebates to defray the costs. Assemblywoman Cottie Petrie-Norris (D-Irvine) called the proposal a preferable alternative to suspending the gas tax, saying that solution “offers no guarantee that oil companies would pass on the savings to customers.”  

As for the surcharge, Borenstein, who chaired the state petroleum market advisory committee from 2015 to its dissolution in 2017, said a more robust investigation might get to the bottom of it.  

The committee probe “never really got any resources to do an investigation” and did not have the power to compel testimony, he said. “So we got stonewalled by the oil companies, and we had one half of one person in terms of staff so we never really made much progress and in 2017, we voted to dissolve the committee because we weren’t making any progress.” 

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