ARTICLE
During the early summer months as gas prices began to soar, Assembly Speaker Anthony Rendon, who announced the formation of a bipartisan committee charged with finding ways the state can reduce gas prices, promised lawmakers will “stand up to the profiteers abusing a historic situation to suck profits from Californians’ wallets.” There “is no excuse for the actions of those who pin California drivers down with a foot on our necks and a hand in our pockets,” he said. The story behind high gas prices begins when a president who as a candidate said “I guarantee you we’re going to end fossil fuel” then while in office actively reversed the previous administration's energy projects. Not long after taking his oath, Joe Biden almost immediately shut down new oil and gas leases on federal lands and in waters, eventually stopping the Keystone XL pipeline project, and a little more than a year ago suspend all activities related to the implementation of the Coastal Plain Oil and Gas Leasing Program in the Arctic National Wildlife Refuge” that former President Donald Trump had approved. Recently, President Biden’s Energy Secretary Jennifer Granholm highlighted the administration’s policy incoherence when she told CNN that today we need the supply of gasoline to increase, and then she added, “of course in five or 10 years, actually in the immediate, we are also pressing on the accelerator, if you will, to move toward clean energy so that we don’t have to be under the thumb of petro-dictators.” However, if we want to pin down the real story and how to decipher the global oil market, we are once again staging a policy and political discussion that was kicked off this week. On Tuesday, consumer advocates and oil industry representatives launched opening salvos in a pre-emptive debate over whether oil companies are “price gouging” drivers or are themselves actually the victim of California’s green policies squeezing out fossil fuel industries. The California Energy Commission convened the panel of energy experts, advocates and oil industry representatives to probe a gas price spike in September that at one point ballooned to an unprecedented $2.60-price gap between what Golden State drivers paid for the average gallon as opposed to the rest of the country. The hearing in Sacramento was meant to dig into the historic price spike that saw prices top $6.40 a gallon before dropping Tuesday below $5 for the first time in nearly nine months. The commission meeting ultimately revealed that regulators are “completely in the dark,” according to one state analyst, when it comes to critical oil industry operations that shape the state’s increasingly volatile gasoline market. “Basically, it is more authority that is needed”, said Quentin Gee, an analyst for the energy commission. This public (panel) hearing sets the stage rushed in by Governor Gavin Newsom’s pledge to levy a “windfall profits tax” on oil companies. The state legislature will convene next week for formal swearing-in ceremonies and then begin the framework where these discussions will go — most likely starting in January 2023. What we do know is a series of conditions that led to the historic gas price spike, including lower-than-normal gasoline inventories among the state’s oil refiners, lower-than-normal fuel imports and mechanical hiccups that fueled a supply shortage. But Gordon Schremp said his agency (CEC) had no way to access company-level information to explain why the state’s handful of oil refineries let their inventories dwindle and decreased their foreign fuel imports despite the supply crunch. California has a set of problems we own, beginning with motor fuel taxes. At 68 cents a gallon, this state has the country’s highest gasoline tax. California’s high gasoline costs are explained by the state’s high taxes, environmental regulations and special fuel blends that prevent rampant smog from accumulating in cities. Altogether fees — including federal taxes that all states pay — California tacks on roughly $1.20 to the base price of California gasoline. On July 1, another 2.8 cents was added to each gallon to pay for Senate Bill 1, the $52 billion road repair legislation that has increased gas taxes every year since 2019. Another policy in play, the state’s cap-and-trade program now adds 24 cents to a gallon of gasoline, according to the Western States Petroleum Association, while the California Carbon Fuel Standard loads on more than 22 cents per gallon. Then there is the reformulated fuel blend, mandated by the state Air Resources Board which is more expensive to produce than conventional fuels. Its additional costs — 10 to 15 cents a gallon — are passed on to drivers in the same way that other policy-caused costs are dropped on consumers. The waging policy and political discussion has only increased with comments coming fast and feverous pitch: In “2020 the oil companies lost hundreds of billions of dollars,” said Michael Mische, a business professor at USC, speaking on Monday at an event organized by Californians Against Higher Taxes. The oil industry responded: On Tuesday, policymakers’ testy relationship with the oil industry was on display. The commission left empty six seats with names of oil industry executives who declined to attend the hearing. Governor Newsom blasted the oil industry’s planned no-show as “pathetic.” Taking their place on Tuesday was the Western States Petroleum Association, a trade group, “You cannot tax your way out of this problem,” said WSPA President Catherine-Reheis Boyd. “The only result of a windfall profit tax will make the problem worse. You are sending the absolute opposite investment decision … to anyone who wants to continue business here.” Severin Borenstein, an energy economist at UC Berkeley, said Tuesday’s meeting is not doing much to further regulators’ knowledge on the subject, but he says it will “establish a framework and baseline that we can work from.” Borenstein cautioned lawmakers that the latest gas price spike is only a symptom of a larger problem in the state’s gas market, which he terms the “mystery gas surcharge.” Even after accounting for the state’s high taxes and environmental fees, Californians pay upwards of 30 cents extra per gallon compared to the rest of the country, according to his analysis. So where will this lead us as we head into the holiday season and the early stages of the 2023-2024 California Legislative Session? For our readers who are data driven reviewers of policy, and if you want a really detailed explanation on the role of gasoline — and the price highs and lows — in a global market, Resources for the Future, a non-profit think-tank in Washington DC provide a storyline — Gas Prices 101 — this explainer describes the factors that affect gasoline prices, how prices have changed over time, and how consumers react to changing prices. The link to the article is here: Resources for the Future - Gas Prices 101.
During the early summer months as gas prices began to soar, Assembly Speaker Anthony Rendon, who announced the formation of a bipartisan committee charged with finding ways the state can reduce gas prices, promised lawmakers will “stand up to the profiteers abusing a historic situation to suck profits from Californians’ wallets.” There “is no excuse for the actions of those who pin California drivers down with a foot on our necks and a hand in our pockets,” he said.
The story behind high gas prices begins when a president who as a candidate said “I guarantee you we’re going to end fossil fuel” then while in office actively reversed the previous administration's energy projects. Not long after taking his oath, Joe Biden almost immediately shut down new oil and gas leases on federal lands and in waters, eventually stopping the Keystone XL pipeline project, and a little more than a year ago suspend all activities related to the implementation of the Coastal Plain Oil and Gas Leasing Program in the Arctic National Wildlife Refuge” that former President Donald Trump had approved.
Recently, President Biden’s Energy Secretary Jennifer Granholm highlighted the administration’s policy incoherence when she told CNN that today we need the supply of gasoline to increase, and then she added, “of course in five or 10 years, actually in the immediate, we are also pressing on the accelerator, if you will, to move toward clean energy so that we don’t have to be under the thumb of petro-dictators.”
However, if we want to pin down the real story and how to decipher the global oil market, we are once again staging a policy and political discussion that was kicked off this week. On Tuesday, consumer advocates and oil industry representatives launched opening salvos in a pre-emptive debate over whether oil companies are “price gouging” drivers or are themselves actually the victim of California’s green policies squeezing out fossil fuel industries.
The California Energy Commission convened the panel of energy experts, advocates and oil industry representatives to probe a gas price spike in September that at one point ballooned to an unprecedented $2.60-price gap between what Golden State drivers paid for the average gallon as opposed to the rest of the country. The hearing in Sacramento was meant to dig into the historic price spike that saw prices top $6.40 a gallon before dropping Tuesday below $5 for the first time in nearly nine months. The commission meeting ultimately revealed that regulators are “completely in the dark,” according to one state analyst, when it comes to critical oil industry operations that shape the state’s increasingly volatile gasoline market. “Basically, it is more authority that is needed”, said Quentin Gee, an analyst for the energy commission.
This public (panel) hearing sets the stage rushed in by Governor Gavin Newsom’s pledge to levy a “windfall profits tax” on oil companies. The state legislature will convene next week for formal swearing-in ceremonies and then begin the framework where these discussions will go — most likely starting in January 2023. What we do know is a series of conditions that led to the historic gas price spike, including lower-than-normal gasoline inventories among the state’s oil refiners, lower-than-normal fuel imports and mechanical hiccups that fueled a supply shortage. But Gordon Schremp said his agency (CEC) had no way to access company-level information to explain why the state’s handful of oil refineries let their inventories dwindle and decreased their foreign fuel imports despite the supply crunch.
California has a set of problems we own, beginning with motor fuel taxes. At 68 cents a gallon, this state has the country’s highest gasoline tax. California’s high gasoline costs are explained by the state’s high taxes, environmental regulations and special fuel blends that prevent rampant smog from accumulating in cities. Altogether fees — including federal taxes that all states pay — California tacks on roughly $1.20 to the base price of California gasoline.
On July 1, another 2.8 cents was added to each gallon to pay for Senate Bill 1, the $52 billion road repair legislation that has increased gas taxes every year since 2019. Another policy in play, the state’s cap-and-trade program now adds 24 cents to a gallon of gasoline, according to the Western States Petroleum Association, while the California Carbon Fuel Standard loads on more than 22 cents per gallon.
Then there is the reformulated fuel blend, mandated by the state Air Resources Board which is more expensive to produce than conventional fuels. Its additional costs — 10 to 15 cents a gallon — are passed on to drivers in the same way that other policy-caused costs are dropped on consumers.
The waging policy and political discussion has only increased with comments coming fast and feverous pitch: In “2020 the oil companies lost hundreds of billions of dollars,” said Michael Mische, a business professor at USC, speaking on Monday at an event organized by Californians Against Higher Taxes.
The oil industry responded: On Tuesday, policymakers’ testy relationship with the oil industry was on display. The commission left empty six seats with names of oil industry executives who declined to attend the hearing. Governor Newsom blasted the oil industry’s planned no-show as “pathetic.” Taking their place on Tuesday was the Western States Petroleum Association, a trade group, “You cannot tax your way out of this problem,” said WSPA President Catherine-Reheis Boyd. “The only result of a windfall profit tax will make the problem worse. You are sending the absolute opposite investment decision … to anyone who wants to continue business here.”
Severin Borenstein, an energy economist at UC Berkeley, said Tuesday’s meeting is not doing much to further regulators’ knowledge on the subject, but he says it will “establish a framework and baseline that we can work from.” Borenstein cautioned lawmakers that the latest gas price spike is only a symptom of a larger problem in the state’s gas market, which he terms the “mystery gas surcharge.” Even after accounting for the state’s high taxes and environmental fees, Californians pay upwards of 30 cents extra per gallon compared to the rest of the country, according to his analysis.
So where will this lead us as we head into the holiday season and the early stages of the 2023-2024 California Legislative Session?
For our readers who are data driven reviewers of policy, and if you want a really detailed explanation on the role of gasoline — and the price highs and lows — in a global market, Resources for the Future, a non-profit think-tank in Washington DC provide a storyline — Gas Prices 101 — this explainer describes the factors that affect gasoline prices, how prices have changed over time, and how consumers react to changing prices. The link to the article is here: Resources for the Future - Gas Prices 101.