California’s proposed fuel efficiency standards for cars don’t have anything to do with the state having the highest gas prices in the country, but that’s what President Donald Trump suggested in a tweet.
The state is pushing for higher fuel efficiency standards than the Trump administration has proposed for vehicles nationwide, and the president said those standards “just aren’t doing the trick,” linking them to gas prices.
Gasoline prices in California are much higher right now than anywhere else in the country, as Trump noted. Gasoline price experts say prices spiked over the last few weeks in California due to unexpected refinery outages that reduced the gasoline supply. With the outages now repaired, that temporary bump should begin to recede over the next few weeks, experts told us.
But California gasoline prices consistently exceed the national average due to the state’s high gas taxes, environmental fees and the cost associated with the state requiring a cleaner-burning gasoline blend.
Since 2015, however, prices have risen higher than can be explained by those higher taxes and regulations. That has prompted an investigation by the California Energy Commission, at the behest of the governor. But none of the potential underlying causes identified to date has anything to do with the state’s efforts to mandate cars with higher fuel efficiency.
In fact, the proposed automobile fuel standards promoted by California would not diverge from the national standards proposed by Trump until model year 2021. And experts say those higher fuel standards for automobiles wouldn’t place any upward pressure on gasoline prices anyway.
Nonetheless, in a tweet this week, Trump linked his administration’s ongoing feud with California over auto fuel standards with the state’s spiking gasoline prices.
Gasoline Prices in the State of California are MUCH HIGHER than anywhere else in the Nation ($2.50 vs. $4.50). I guess those very expensive and unsafe cars that they are mandating just aren’t doing the trick! Don’t worry California, relief is on the way. The State doesn’t get it!
— Donald J. Trump (@realDonaldTrump) October 9, 2019
Trump’s numbers are off a bit. GasBuddy reports regular gasoline was selling at an average of $4.176 per gallon in California on Oct. 11, the highest rate in the country, while the national average was $2.642. AAA reported nearly identical figures: $4.180 per gallon in California, and a national average of $2.641. We have written about Trump’s dubious claims that California’s efforts to mandate higher fuel efficiency in new cars makes them less safe. Experts told us that is not likely true. And the president has also inflated the added cost of more fuel efficient cars, failing to account for such things as fuel cost savings.
Trump’s tweet drew a sarcastic response from California’s Democratic governor, Gavin Newsom, who wrote, “those electric vehicles we’re encouraging car companies to manufacture sure are gas guzzlers!”
You have no credibility on this issue. You’re trying to gut our emissions laws. Deny climate change. And wreck our environment by burning the dirtiest possible energy sources.
But yeah, those electric vehicles we’re encouraging car companies to manufacture sure are gas guzzlers! https://t.co/Aia1jgCId8
— Gavin Newsom (@GavinNewsom) October 9, 2019
Tom Kloza, an oil industry analyst and a founder of the Oil Price Information Service, told us that the president linking higher gas prices in California to the state’s efforts to require more fuel-efficient cars is inaccurate.
“Mandates to use electric vehicles or the effort by the state to keep tougher CAFE standards would argue for less demand in the future, so it is not accurate to attribute the higher prices to those initiatives,” Kloza told us via email.
What Caused the Recent Price Spike in California?
Average gasoline prices spiked in California between Sept. 1 and Oct. 1, rising just over 42 cents per gallon to $4.15, according to GasBuddy. Over the same period, the national average for a gallon of regular gasoline only rose about 5 cents.
Gasoline price experts told us the disproportionate jump in California is due to unexpected refinery outages, which have since been fixed.
“California’s gas prices are high now because there have been a number of refinery outages that caused supply to shrink in the state (and regionally in the West Coast market),” AAA spokesman Devin Gladden told us via email.
Indeed, national gas price maps show that all eight states with the highest average gasoline prices are concentrated on the West Coast.
“When supply shrinks while demand remains robust, prices typically spike,” Gladden said. “It’s unusual to see this happen in the fall, since prices across the nation typically decrease as a result of lower gas demand and the switchover to cheaper to produce winter blend gasoline. That is what is occurring to the prices in the majority of states — but given California’s gas supply challenges, prices have risen there and in the region.”
Patrick DeHaan, head of petroleum analysis for GasBuddy, said the unexpected refinery outages came at a time when other refineries were undergoing planned maintenance, causing gasoline supply shortages. The refineries are back online now, and prices in California should start to decline rapidly as a result, he said. He forecasts prices will dip by 50 cents per gallon in California over the next six weeks or so.
Why Is Gas Always So Expensive in California?
Aside from the recent spike, the average price for gasoline in California is typically about a dollar per gallon higher than the national average, DeHaan told us. Gasoline price experts say there are a number of reasons for that. For starters, California has the highest state taxes on gasoline in the country, adding about 62 cents per gallon, according to the American Petroleum Institute. That’s nearly 26 cents per gallon higher than the national average. Last November, California voters rejected efforts to repeal a 12-cent per gallon gasoline tax, the proceeds of which support highway repair and other transportation infrastructure improvements.
California also requires a special cleaner-burning blend of gasoline that adds a bit to the cost. “Refiners make more profit on gasoline produced at California refineries, and not all U.S. or worldwide refiners can make the tough specification gasoline,” Kloza told us. It also creates a bigger challenge to resupply when there are unexpected refinery outages, DeHaan said.
And the state has a cap-and-trade program that seeks to reduce greenhouse gas emissions. The program results in higher costs to petroleum producers, which in turn contributes to higher prices at the pump.
Still, those factors don’t account for all of the price differential in California.
“California can be viewed as a less competitive market than other regions since there are fewer competing companies in refining and the state is a vast distance from other refining centers in the U.S. (Gulf Coast and Northeast) and the world,” Kloza said. “The amount of refining capacity in California and the Pacific Northwest has shrunk a bit this century in comparison to the addition of perhaps 2-million barrels per day of additional capacity east of the Rockies. No additional refining and population growth is a dynamic that is unique to western states.” Other factors like more expensive real estate in California also play a role in gasoline prices.
All of those factors explain why Californians pay more for gasoline than most others around the country, but they don’t explain the widening divergence between California’s gasoline prices and the national average beginning in 2015, said Severin Borenstein, a business and public policy professor at the University of California, Berkeley’s Haas School of Business. Borenstein has written extensively about what he calls the Mystery Gasoline Surcharge in California, a phenomenon that he said could be tied to any number of factors from a decline of competition to “logistical problems with importation or distribution of gasoline.”
In April, Gov. Newsom raised the specter of “inappropriate industry practices” and directed the California Energy Commission to look into the state’s inordinately high gasoline prices. A preliminary report from the commission in May referred to a “residual price increase” — above and beyond what could be accounted for by the state’s taxes and regulations — which it says ranged from an extra 17 cents to 34 cents per gallon since 2015.
“The Energy Commission has identified a number of possible causes that could explain the residual price increase in California, ranging from refinery outages to potentially market manipulation,” the report states. It also called for a fuller study that is due to be presented in the coming weeks.
Trump vs. California on Fuel-Efficient Cars
The California Energy Commission’s report doesn’t mention the state’s row with Trump over regulations on fuel efficiency standards for automobiles. Trump has proposed to freeze fuel economy standards put in place by the Obama administration at 2020 levels through 2026. Trump’s plan also revokes California’s ability to set stricter standards, which the state wants to do. Four major auto companies drew the ire of the president last summer when they struck a deal with California to largely adhere to the Obama-era standards. That deal came after talks between the Trump administration and the state broke down. California and 22 other states are now suing the administration, seeking the right to allow California to set its own pollution limits on automobiles.
As for Trump’s dig that more fuel efficient cars proposed by California aren’t “doing the trick” to lower gasoline prices, experts told us that argument is a non sequitur. For one, Trump’s proposed freeze is not scheduled to come into play until model year 2021. So the idea that those changes may have affected California’s gas prices now makes no sense from a timing perspective. On top of that, there’s no reason to to believe more fuel efficient cars would create upward pressure on gasoline pricing anyway.
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