The Hidden Factors Driving up Gas Prices in California

AP Photo/Carolyn Kaster

An open letter to California Governor Gavin Newsom:

I am writing to address the concerns raised in a recent letter from your "Oil Czar," Tai Milder, regarding gas price fluctuations in the state. While it is commendable that you are taking steps to better understand these issues, I believe it is imperative to highlight the significant role that local, state, and federal gas taxes, as well as California’s stringent environmental regulatory regime, play in driving up the retail price of gasoline sold in California.

Let's start by acknowledging the inconvenient truth about gas prices in the Golden State—they are not solely determined by global supply and demand. Something more insidious is at play—the exorbitant taxes piled on at every level of government. 

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While it might be politically useful to focus on recent gas price fluctuations, California currently, and for a long time, imposes some of the highest gas taxes in the country. This burdens hardworking Californians with an unfair and disproportionate financial strain. We must not overlook the impact of these taxes in understanding why we pay so much at the pump.

And let's not forget about the environmental mandates imposed on the gasoline industry in California

While it is admirable to prioritize the environment, we cannot turn a blind eye to the fact that these mandates come at a steep cost. California refineries are forced to make costly adjustments to their processes and fuel formulations to comply with these so-called green mandates

With all due respect, Governor, who do you suppose bears the burden for these external costs? It's the consumers, the very people you were elected to protect. These environmental mandates directly translate into higher gasoline prices, causing retail and producer prices across the board to also rise, pushing families and small businesses to their financial limits. 

We need to acknowledge that the market conditions in California are heavily influenced by factors beyond our control. Geo-politics resulting in fluctuations in global crude oil supplies and refinery maintenance events directly impact the price California motorists pay at the pump. These fluctuations, while perhaps a natural occurrence in a global energy market, are not some nefarious scheme concocted by oil companies to gouge consumers.  

Moreover, since you and your political party insist on subjecting California’s working families to the fluctuations of a global oil market due to your refusal to support drilling in California, resulting in nearly 60 percent of California’s oil and gas supply coming from foreign sources, it’s only fair and right that you acknowledge the realities of this often unpredictable global energy market, and its impact on California’s retail gas prices.

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Stop scapegoating California’s oil and gas producers in a cynical effort to play politics. 

I must also express my concerns regarding your newly created Division of Petroleum Market Oversight (DPMO). While transparency and oversight are important, we must not allow even more regulations, which are already excessive, to suffocate the functioning of California’s retail gasoline supply. Governor, have we not learned from history that excessive regulation and high taxes lead to inefficiencies and higher consumer costs?

Also, it’s disheartening to hear the concerns raised in Mr. Milder's letter about spot market transactions and their impact on gasoline prices. Spot markets are an integral part of a free market system that allows for voluntary transactions based on current market conditions. Implying spot market volatility is somehow a market manipulation is misleading and misguided. Instead, we should view it as an opportunity for market participants to respond and adapt their strategies accordingly, driving innovations and efficiencies that lead to more energy for California, not less.

Mr. Milder suggests that spot market volatility and inadequate inventories make California's gasoline prices vulnerable to price spikes. Of course, less supply without a corresponding reduction in demand will lead to price fluctuations. Do you need an “Oil Czar” to tell you that? However, this perspective fails to recognize the incentives of market participants to address these global supply challenges.  

In a competitive market, companies have a strong motive to increase their inventories and ensure a stable gasoline supply to meet consumer demand. However, what role do you suppose trendy policies such as ESG play in the availability of capital? Oil and gas producers are vested in managing price fluctuations to maintain a competitive edge. Denying them the capital they need to manage their supply and demand equilibrium, based on a woke political ideology, is counterproductive.  

Fostering a freer market environment that encourages more supply, innovation, and competition will result in a more efficient energy market, ultimately resulting in lower wholesale and retail prices that benefit California consumers.

Lastly, Governor, it’s time you face the hard truths about gasoline prices in California. The exorbitant local, state, and federal gas taxes, coupled with stringent environmental mandates, are driving up the cost of fuel for hardworking Californians. This isn’t a theory; it is an economic fact. It is crucial that your administration prioritize an approach that allows market forces to determine oil access, availability, and prices.  

Reducing taxes and easing burdensome environmental mandates, coupled with more exploration and production, will alleviate the financial strain on California’s over-burdened, over-taxed working families.  

It’s long past time to put the interests of the people of California first and take decisive action to address the root causes of the high gasoline prices that burden us all. A tax and regulatory approach that creates scarcity in our state’s oil and gas market is counter-productive and only ends up waging economic violence on Californians of all walks of life, especially our lowest-income families.

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