Lessening California's Energy Regulations Will Help Consumers

Forbes

02-07-2025

Expensive gasoline and fuel.
Gas costs too much in the Golden State. Addressing this unaffordable energy problem should be a top priority for state legislators and the governor. California has taken a step backward toward this goal, however; but may be primed to take a step forward too.
Stepping backward, the California Air Resources Board (CARB) increased the stringency of the state's low carbon fuel standards (LCFS). As of July 1, 2025, the new target reductions in the carbon intensity of transportation fuels are 30 percent below 2010 levels by 2030 and 90 percent below by 2045. The previous benchmarks were a 20 percent cut relative to 2010 by 2030, and an 85 percent cut by 2045.
According to Cal-Matters, 'the previous fuel standard, which was set in 2011, added 9 cents to the cost of a gallon; a UC Davis researcher estimates that the new one could add 5 to 8 cents per gallon.' According to Politico, prices at the pump could increase by as much as 15 cents per gallon due to the more stringent standards. Piling more environmental program costs on Californians will surely worsen the state's affordability crisis.
A bill currently under consideration in the legislature – SB 237 – presents an opportunity for the state to take one step forward. While the details are complex, this bill would cap the credit prices for the LCFS at around $75 to $76 per ton, which will help mitigate future price increases.
The bill also encourages the state to replace its unique blending standard in favor of a unified western state standard and attempts to reduce the regulatory burden refiners must navigate when seeking environmental permits. If passed and faithfully implemented – a far from certain prospect – these reforms will help lessen the periodic supply constraints, and resulting price spikes, that too often afflict California.
Unfortunately for cash-strapped Californians, SB 237 will not reduce gasoline prices from their currently inflated levels. As measured by the EIA, the average price for a gallon of regular gasoline in March 2025 was $4.49. For the U.S. overall, the average cost was a significantly lower $3.10 – Californians are spending around $1.39 more per gallon than the average American.
The question perplexing Sacramento is, why? The answer is not difficult, simply inconvenient – it's the state's significantly more burdensome tax and regulatory policies. In an evaluation titled 'Why California usually pays more at the pump for gasoline' the EIA claims the higher costs are due to the state's taxes, fees, environmental programs, and its isolated petroleum market.
In total, the study estimates that California's environmental programs add $0.54 to the price of a gallon of gas. Adding in the $0.90 in gasoline taxes and fees, state policies are adding $1.44 to the price of every gallon of gasoline. If all these costs were eliminated and replaced with the average state tax on gasoline – around $0.28 per gallon – then the price of a gallon of gasoline in California would have cost about $3.43 per gallon in March 2025. In other words, the costs in California would be around the U.S. average.
As the figure below demonstrates, these excessive costs are not a short-term phenomenon. California's gasoline prices have been significantly more expensive than the national average for the entire 21st century. However, while they were around 12% more expensive between 2000 and 2015 on average, the price premium exploded beginning in 2015 as the state's cap and trade policy and LCFS became more stringent. For the first five months of 2025, California's costs have become 44% more expensive than the national average.
California price premium
These excessive costs harm families and businesses across the state. Looking just at the direct impact on families, the costs are not insignificant. Based on the average annual miles driven in California (11,409) and the average automobile MPG (24.9), the average Californian purchases around 458 gallons of gas annually. Due to California's $1.39 price premium, the average California driver must spend an additional $637 on gasoline. Across all 27 million drivers, the excess burden costs Californian families nearly $17.2 billion.
Restoring a more affordable energy landscape in California requires a more realistic approach to the problem of global climate change. SB 237 is far from a panacea as it still maintains the complicated array of regulatory policies that have been driving up California's relative price of gasoline. Further, how the bill is implemented (if it is ultimately implemented) is also crucially important.
However, SB 237 is a signal that more politicians in Sacramento may be beginning to recognize the causal link between high gas prices and policies such as the state's low carbon fuel mandates, cap and trade regulations, and high excise taxes.
If this is the case, then SB 237 may mark the first step toward restoring the Golden State's broader energy affordability. For the sake of the many families struggling with California's unaffordable policies, let's hope so.