The “mystery surcharge” being cited by state officials may be the result of California’s “most demanding set of fuel policies in the world”

Legal Insurrection readers may recall that the 2018 election results in California resulted in both a highly progressive governor and the retention of a gas tax after the repeal effort failed.

Yet, our state’s leading politician is mystified at the California’s record-setting gas prices.

Gov. Gavin Newsom wants to know why California’s gasoline prices are higher than in the rest of the country, blaming potential “inappropriate industry practices” Tuesday rather than the state’s higher taxes and tougher environmental regulations.

Newsom asked the California Energy Commission for an analysis of the state’s gas prices by May 15. California drivers were paying an average of $4.03 a gallon Tuesday, or $1.18 more than the national average, according to AAA.

Higher taxes, along with a combination of tougher gas standards and environmental regulations, normally account for about 70 cents of that difference, said Gordon Schremp, a senior fuels specialist with the California Energy Commission. But the rest is a mystery.

Perhaps Newsom can start by looking at the state’s fuel policy. For example, one analysis shows that the mandates for area and regional blends cost extra to produce, and those costs get passed on to the consumer.

Fueling California, a coalition of major industries doing business in the state, initiated the study to provide the governor’s office, legislators, decision-makers, regulators, the media and the public with more information and a greater understanding of the state’s volatile fuel costs and to outline policy changes that could help ease the financial burden in these tough times.

The study shows that California has among the most demanding set of fuel policies in the world, leading to a myriad of distinct fuel standards and blends.

Californians pay five to 15 cents extra per gallon solely due to the special blends required in the state. While these special blends help the environment, they also can cause price spikes when supplies run low.

As our fuel standards grow increasingly differentiated from the rest of the country, it also is harder to find supplies that comply with state regulations. This effectively renders California a “fuel island” since we also have no pipelines linking us to petroleum or crude oil supplies, and our storage capacity is limited.

Another contributing factor is Sacramento’s seeming desire to commit energy suicide. An assembly bill is now being considered that would would increase setback distance between oil production facilities and private and public property to 2,500 feet for every well, existing or planned in California.

The requirements would essentially shut-down fuel and oil production in the state.

According to the Western States Petroleum Association and the California Independent Petroleum Association, this bill, if passed, would effectively end oil production in many parts of the state and threaten the future of production IN ALL PARTS OF THE STATE, for example:

  • 87% of all wells in the City of Los Angeles would be shut in
  • 66% of the well in Los Angeles County would be shut in
  • Thousands of wells in Kern County will be shut in

Reducing the output of a product essential for daily life tends to drive the price up.

Finally, the fuel and oil companies are not charities. They need to make money, which they use to invest in creating more product and researching ways to make the industry safer and more “environmentally friendly.”  It’s called profit.

Here is the analysis that identifies the “mystery surcharge“.

  • Federal excise tax — 18 cents
  • State excise tax — 42 cents
  • State and local sales tax — 8 cents
  • State underground storage tank fee — 2 cents*
  • Additional costs for compliance under Cap & Trade, as well as the Low Carbon Fuels Standard — 28 cents
    Total — 98 cents

. . . .  Severin Borenstein, a professor at UC Berkeley’s Haas School of Business and faculty director of the Energy Institute at Haas, said his own tax calculations came within a penny of that total. But the mystery surcharge — an added expense that has yet to be identified — has averaged 28 per cents a gallon from January through March of this year. When added to the taxes, that brings the total to about $1.26 a gallon.

Newsom and his administration clearly do not understand capitalism. I do not begrudge oil companies their earnings, given how much the state takes out in taxes. At least I’m getting something for my money!

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