California has a lot going for it. Beautiful scenery, a variety of landscapes from mountains to oceanfront. It enjoys a salubrious climate. The vast Central Valley has some great farmland. It's a great place. Unless you want to drive anywhere, that is.
It's funny because if there ever was a state made for the great American automobile, it would be California. The road network is pretty extensive, and while the major metro areas can experience some serious traffic jams, for the most part, getting around isn't too bad - you just have to dodge a lot of potholes and uninsured (and very often illegal alien) motorists. But the worst part is filling up your gas tank. California has the highest pump prices in the nation, and it's not even close. This has Governor Gavin Newsom, he of the 2028 presidential ambitions, to scratch his head and wonder why. A recent Pacific Research Institute article has some details.
Gov. Gavin Newsom continues to puzzle over a “mystery surcharge” for gasoline. The enigmatic fee was first identified in 2017 by Severin Borenstein, an energy economist at the University of California, Berkeley’s Haas School of Business. It explains, he says, “the extra amount we pay for gas that can’t be explained by higher taxes and producer costs.”
A couple of years later, Newsom asked the California Energy Commission to investigate the “unaccounted-for price differential” that “may stem in part from inappropriate industry practices.” In its just-released 2024 Annual Report, the Division of Petroleum Market Oversight (DMPO) supposedly confirmed the existence of the surcharge, estimating it added an average of 41 cents per gallon of gasoline between 2015 and 2024.
The DMPO also says the “surcharge” cost motorists $59 billion during that period. Of these costs, “higher gross gasoline industry margins in California make up the largest share” – an estimated 35 cents per gallon.
Well, here's a little economic hint for California: If you make it almost impossible for a company in a given industry to do business in your state, then you will inevitably see a reduction in the supply of that company's products - and the concomitant rise in that product's price. That's the first piece of this puzzle, which isn't a puzzle for anyone who has taken Econ 101.
But the real stumper here is the claim that the gasoline companies are seeing "...higher gross industry margins." Gross margins, note. A look at net margins tells quite a different story.
The CEC’s data on gross margins is updated through August 2025 but, for some reason, the net margin data is only updated through April 2024. However, the average gross margins between May 2024 and August 2025 were around 68 cents per gallon. Based on the relationship between gross-to-net margins between June 2023 and August 2024 (see the figure), it is likely that the industry net margin was negative during most of this period as well.
Here's the figure.
— Ward Clark (@TheGreatLander) November 13, 2025
The moral of the story? The mysterious "surcharge" is certainly coming from the gasoline companies. Note that out of the 11 months charted, 5 of them recorded a net loss for the gasoline industry in California. Know what happens when a business enterprise starts losing money in a certain market? They leave.
Read More: Tank Full? CA Gas Prices May Hit A Devastating $10 - Thanks, Gavin Newsom!
In reality, there is no mystery surcharge. Gasoline costs more in California because the state has stranded itself on an “energy island” and imposes a tax-and-regulation regime like no other in the country. It is due to these policy decisions that California’s gasoline prices are the highest in the nation.
California has been operating under an independent set of automobile emissions rules since at least the 1960s, when it established the nation’s first tailpipe standards. This penchant for acting alone has created a regulatory web that has turned California into an energy island.
Californians are forced to buy boutique gasoline blends (the formulations change with the seasons) made and sold nowhere else in the U.S. When supply is low after a refinery has closed because it has become too difficult to do business in the state or shut down due to fire, or is not in line with demand for any other reason, importing gasoline from another state to meet consumer needs is not an option. Supply shortages and rising costs inevitably result.
But wait! There's more!
State and local taxes also contribute to the steep costs at the pump. They include the 61.2-cents per gallon excise tax, the 18.4-cents federal excise tax, environmental regulatory costs (including the low carbon fuel standard and cap-and-trade program) of 54-cents per gallon, the 2-cent underground storage tax fee, and the 3.8 percent average state and local sales tax. Throw in the overhead to cover the labor and energy mandates that further drive up the costs of operating any business in the state, and the “mystery surcharge” is not so mysterious.
All of this leads to an economic meltdown in gasoline prices in California. It's not mysterious. It's not price-gouging on the part of the gasoline companies. It's not even aliens, although, if you walk around the streets of San Francisco or Los Angeles, you might very well see some figures that could pass for aliens - space aliens, not the ICE/DHS kind. No, California's injuries with gasoline prices are self-inflicted.
As is so often the case, these liberal policies, the ones that brought California to this pass, started innocently enough. Some of us are old enough to remember images and film of Los Angeles in the late 1960s, and yes, it was bad. One could cut the air with a knife; millions of automobiles, with very basic engines, burning leaded gasoline, had made the LA air a toxic brew. But a few elementary things fixed that: Unleaded gasoline, cleaner fuels overall, and improved automotive technology, particularly where emissions were concerned. The battle was won. It was won years ago, in fact. The city is still stinky and smoggy on occasion, but the population has grown as pollution has decreased, dramatically.
California's Democrats, though, can't claim victory. They can't point to an acceptable air quality and say, "Look, things are a lot better." The left has a propensity for taking every issue, be it voting rights, racism, or gasoline blends, past the point where the initial problem has been addressed and into the realm of the truly absurd.
That's what's going on in your state, Governor Newsom. That's why the gasoline companies are leaving. That's why many of your productive citizens are leaving. That's why you can't rent a U-Haul in California for love nor money. That's why your state lost two House seats in the last census. Because, like most Democrats, you just have no stinkin' idea when it's time to just take your ball and go home.
