The Gas is Too Damn High!

The Rent Gas is Too Damn High! 

I was riding the train to work and decided to conduct a scientific, peer reviewed informal poll on gasoline prices with my friend-group. It’s Los Angeles (yes! I ride the train in LA), so most of my friends work in Hollywood or adjacent, but they’ve known me for over a decade, and heard me talk about my work in Big Oil Energy and Environmental Consulting, so I thought there was a chance they could answer: 

“Why do you think the gasoline in California is so expensive?” 

My friends know gasoline is expensive, but ask them to explain why and you get a myriad of answers: from the accurate but incomplete “environmental regulations and fees/taxes”; to the delicious conspiracy that “California has a 7-layer-dip of regulatory punishments for consumers of gasoline”; to my favorite meme allusion, “I have no idea but the gas is too damn high!” 

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And of course there were the lazy, poll destroying jerks people that immediately consulted with ChatGPT, which gave a decent but incomplete answer. Unsurprisingly, no one pointed to a supply constraint.  

So why is gasoline so expensive in California?

As my friend guessed, gasoline in California is in fact subject to higher taxes and environmental regulations, but equally important is that it’s also constrained by infrastructure. Here are the four main reasons: 

1. Supply is squeezed: there are no pipelines connecting California to the major refining centers on the Gulf Coast, so any disruption to local supply leads to price spikes. This isolation leads to 10-20 cents a gallon normally but can spike to $1-2+ if refineries shut down unexpectedly. 

2. Gasoline in California generates less smog, but the tradeoff is that it’s more expensive to produce by about 10-20 cents a gallon and further exacerbates the supply constraint. 

3. The use of expensive biofuels reduces the net carbon emissions by 20%, but this drives up the price another 50 to 75 cents a gallon. Note that this doesn’t really reduce smog. 

4. Gasoline taxes in California are higher, by about 35 cents a gallon. 

The net is gasoline that’s $1-2 more expensive at normal conditions, with spikes potentially much higher than that. Let’s dive deeper into each of these causes. 

Supply is squeezed, and the refining cushion is gone 

In 1990, California had roughly 2.3 million barrels per day of crude refining capacity spread across more than 30 refineries, with infrastructure designed to export the excess supply. You can see that in the below product pipeline diagram – the arrows all point out of California. 

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Source: EIA 

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Today, that refining capacity is closer to 1.7 million, across thirteen, twelve eleven refineries, and the supply is frequently short. Why are refineries shutting down? The primary reason is they anticipate that gasoline demand will decline as drivers switch to electric cars. The fuel supply infrastructure system, however has not been modified, and is still designed to export excess supply.  

With no pipelines connecting the state to the major refining centers on the Gulf Coast, gasoline must be produced in California or shipped in over water. When refineries run reliably and waterborne shipments are planned, the system stays balanced and prices are predictable. 

Refineries don’t always run reliably. If a refinery shuts down for unplanned maintenance, we can’t quickly backfill from Texas the way other regions do. Replacement fuel arrives… slowly. 

Shipping doesn’t fix it either. Domestic cargoes are constrained by the Jones Act and the choke point at the Panama canal. The international routes are long – all the way from Asia-Pacific. When something breaks, waterborne help is not close. 

As a result, when a refinery shuts down, backup inventories draw down and prices spike to rebalance the system. That’s why California’s isolation might add 10–20 cents per gallon in normal conditions but can turn extended unplanned outages into an eyepopping, wallet crushing $1–2 per gallon spike. There’s very little margin for error.  

California gasoline generates less smog 

The polluted, smog-filled brown air in California is as legendary as our beaches – and it used to be worse. In the early 1990s, choking under nearly constant unhealthy air, California’s Air Resources Board changed the gasoline recipe, phasing in a cleaner burning formulation in 1996 that did what it’s supposed to do: cut the amount of smog forming pollutants from tailpipes. 

The reformulation worked. When the state rolled it out in 1996, ozone levels (the main chemical precursor for smog) in Southern California dropped 10-15% almost immediately. The American Lung Association tracks the number of “Very Unhealthy or Hazardous Air Days” in Los Angeles and you can see the drop in 1996. 

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Source: American Lung Association 

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The tradeoff for cleaner air is cost and flexibility. Producing the low smog formulation typically adds 10-20 cents a gallon. In addition, few refineries outside California produce the blend regularly, so it compounds the supply problem. During an unplanned refinery outage, refineries in Texas or Asia must first produce the gasoline and then ship it to California. This supply lifeline can take 3-4 weeks! So, the price spikes are enduring. 

To summarize it: cleaner burning California gasoline improves air quality, but it costs more to produce and tightens the market. These first two factors are linked. 

The use of biofuels reduces the net carbon emissions by 20% 

I spent the last seven years of my time at Chevron working on biofuels, so I was somewhat surprised that most of my friends didn’t even know what they were. 

Biofuels are gasoline, jet fuel and diesel products made from recently living organic materials such as soybean oil, agricultural waste, or animal fats. An advantage of biofuels is they have a reduced carbon footprint when they are burned in comparison to conventional oil-based fuels. 

For this reason, California leaned into the use of biofuels when it took action to cut carbon emissions with the complicated but effective Assembly Bill – 32. This law touches basically all aspects of energy use in the state and has had a real impact on emissions (lower!) and prices (higher!). 

A key component of this law, the Low Carbon Fuels Standard (LCFS), mandates a reduction in the carbon emissions of transportation fuels, i.e. gasoline and diesel. Fuel producers have responded by manufacturing and blending lower carbon biofuels into conventional fossil fuels.

  The law is working. As of 2025, LCFS-mandated biofuel blending has reduced the carbon emissions of fuels sold in California by nearly 20% compared to the rest of the country – see the downward trend on the below chart.  

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Source: California Air Resources Board 

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That reduction isn’t free. Biofuels are expensive and the cost shows up in both gasoline and diesel prices—typically 20-40 cents per gallon. But the cost doesn’t appear as a tax or surcharge on your receipt. It’s embedded in the wholesale price and passed through quietly. 

The LCFS isn’t the only cost-raising carbon policy in AB-32. Another part of the law, Cap-and-Invest, directs fuel suppliers to charge their customers a fee for the remaining carbon emissions that aren’t from biofuels. Once again, this surcharge doesn’t show up on your receipt, even though it costs another 20-40 cents per gallon. 

The net is 50-75 cents a gallon. Drivers experience higher prices, but there’s no mechanism for them to identify the cause or explain the benefit—many people don’t even know these policies exist. 

Gasoline taxes are higher in California 

On top of everything else, California simply taxes gasoline more than any other state. According to the tax foundation, California has the highest gasoline tax and runs 38 cents per gallon higher than the national average. 

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Source: Tax Foundation 

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This is a policy choice. California relies on fuel taxes to fund transportation infrastructure and road maintenance in a state with high usage, high construction costs, and limited public transport. Other states do this as well, but most states need to supplement road construction from other funding. In high income tax California, gas taxes are also politically easier to raise than income or sales taxes, and they fit a user-pays model—though that model is becoming less clear as more people drive electric. 

So part of California’s price premium has nothing to do with oil or carbon credit markets at all. It simply reflects how the state chooses to raise money. 

Thoughts on Policy 

Conversations about gas prices often devolve into conspiracy theories or finger-pointing. Even industry experts have a hard time explaining the causes simply because the system is complex, the price impacts are real, and the environmental bill arrives without an itemized receipt. 

At the same time, the state is trying to address costs. The California Energy Commission (CEC) released a study with 14 different proposals to stabilize the supply and price of gasoline in California. Some of these proposals are heavy handed – state run refineries?! – while some have a lighter touch, including relaxing the smog-reducing specification during price spikes to increase supply.  

The common theme of the CEC’s 14 proposals is supply reliability: reduce refinery-outage-driven price spikes and require more backup inventory. They do not address refinery closures or the supply infrastructure problem in any real way.  They also don’t really address the policy costs themselves — the carbon charges and smog reducing formulation costs deliberately embedded in the price of gasoline to reduce emissions. Those are design choices, and the higher prices they induce are not market glitches. 

In my opinion, the unspoken tradeoff for the CEC’s proposals to stabilize supply is an even higher baseline gasoline price.  A full review of the CEC’s ideas could be its own white paper; for now, I’ll say the CEC solutions aren’t free and could trade a 10 cent a gallon increase to the baseline gasoline price in exchange for less price spikes.  

There isn’t really an easy solution to the high prices, but I think a place to start is more transparency on environmental costs through informative and witty whitepapers at the pumps. Cleaner air and lower carbon emissions have real value, and higher prices make electric vehicles more attractive, but consumers ought to be able to pinpoint what they’re paying for when they fill up. And we need a mechanism to charge electric vehicle drivers for road maintenance, not just in California but nationally, since they don’t pay gasoline taxes. 

In the end, I think California demonstrates how using gasoline as the primary vehicle for environmental goals creates a (often literally) bumpy road. If the state continues to rely on gasoline prices to carry so much of the environmental burden with such little transparency, its leaders shouldn’t be surprised when drivers are angry about prices they don’t understand.