I’ve been questioning for a while why gasoline costs in California are a lot increased than in different elements of the nation. I do know that gasoline taxes are a lot increased, and so they account for the majority of the distinction in costs, however there’s a big portion unaccounted for. A current Wall Avenue Journal information story does a pleasant job of explaining. It’s Jinjoo Lee, “A $1.23-a-Gallon California Thriller,” Wall Avenue Journal, January 21-22, 2023.

First, increased taxes and charges:

There are some quantifiable sources of the California premium. Greater state fuel taxes are one purpose. The state’s clear air insurance policies are one other. These embrace a cap-and-trade program for greenhouse-gas emissions, a low-carbon gas customary and a payment for the abatement of leaking underground storage. California additionally mandates a cleaner-burning gasoline, which provides round 10 cents a gallon.

Tally all of these California-specific prices up, although, and it comes out to about $1.09 a gallon, or 80 cents greater than what the typical state fuel tax is elsewhere within the U.S., in line with calculations by Prof. Severin Borenstein on the College of California Berkeley’s Haas College of Enterprise, primarily based on the month-to-month common for December 2022. However that also leaves a 43-cents-per-gallon distinction not defined by California-specific tax and air policy-related prices. Mr. Borenstein was a member of a committee that the California Power Fee assembled in 2014 to raised perceive fuel-price fluctuations.

The article notes that the 43-cent distinction doesn’t appear to be going to the refineries. So who will get it? Homeowners of gasoline stations. However why doesn’t entry of different gasoline stations drive this differential a lot decrease? Regulation.

In case you haven’t seen, California’s state authorities is attempting to eliminate gasoline-powered autos in favor of electrical autos. The California Air Assets Board (CARB) has acknowledged that beginning in 2035, no new gasoline-powered vehicles might be allowed to be offered in California. My guess is that there might be an enormous demonstration in opposition to this regulation as we get nearer to 2030. Nonetheless, with the subsidies to EVs and with the interim restrictions [see the graph in this link for the percentage by year] on the % of gasoline-powered autos that might be allowed to be offered, a rational investor would anticipate a shrinking marketplace for gasoline. Mix the shortened time interval during which to make a return on funding in a brand new gasoline station with the issue of getting new gasoline stations accepted in California, and the outcome will not be a lot entry. Ergo, increased income to gasoline stations.

Bonus query: Which California governor signed the legislation creating the California Air Assets Board?

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