On Friday, the price of gasoline in California was $3.30 a gallon, versus $2.43 for the rest of the country. Signed into law in 2006, Assembly Bill 32 mandated a reduction in California's GHG emissions to 1990 levels by 2020. For the transportation sector, this centers on standards for cleaner, more efficient vehicles/trucks, a clean fuels standard, and now cap-and-trade. California drivers pay two types of state taxes at the pump: a sales tax; a percentage of price; and an excise tax, a set amount per gallon. Combined with the federal 18.4 cents per gallon federal tax, total gasoline taxes/fees in the state can soar above 70 cents a gallon. California's cleaner burning reformulated gasoline requires more processing and costs an extra 5-15 cents a gallon to produce. And in April, California will switch to the more expensive Summer fuel blend, used until October 31. The fall in the price of crude oil has reduced gasoline prices and helped to mitigate the increases in maintenance service rates.
Cleaner CARBOB gasoline is mandated by the California Air Resources Board and is made to be mixed with ethanol, a more corrosive fuel. Above 900 million gallons per year, California has been the highest ethanol user in the country. Factoring in energy density, ethanol is about twice as expensive as gasoline (see here). BCG finds that California's Low Carbon Fuel Standard, installed in 2007 to reduce the carbon-intensity of transportation fuels 20% by 2020, will add between 33 cents and $1.06 per gallon to gasoline production costs by 2020, another premium that will get passed onto customers through higher prices. Started on January 1, AB 69 expanded California's complex cap-and-trade program to include gasoline and is expected to add another 16 to 76 cents per gallon. Some point out that this "hidden" tax is now going masked because the cost of gasoline is down. Although eventually it could add an additional $5-7 per fill-up for families.
California produces almost all the gasoline sold in the state, remaining an "island market" because of a lack of pipelines connecting to other states and an inability to import because of strict environmental regulations. Only a few places actually make CARBOB. California's prices are susceptible to spikes because capacity continues to tighten. For example, the number of refineries producing gasoline has dropped from 35 to 14 since the mid-1980s. There is therefore little margin for error and less ways to cope when supplies go offline. There is already a tight balance between supply and demand in the refining business because low margins keep utilization rates high. Importantly, California's gasoline market is in contrast to its electricity market, for instance, where in times of reduced supply importing a third of power actually gives the state more flexibility (see here). Some recent examples:
California: More People, More Money, More Vehicles, More Demand....Less Capacity
Sources: EIA; USDOT; USDA; JTC
California's gasoline use has been declining in recent years, but drivers still gobble up over 40 million gallons a day, the 3rd largest market in the world behind the U.S. as a whole and China. After natural gas, gasoline is easily the 2nd most important source of energy in California, supplying 1,650 Trillion Btu a year. Gasoline will remain critical for decades at least because there is simply no current material substitute. The "demand destruction" caused by higher prices amid lower/flat incomes since the 2008 financial crisis cannot be overstated. Now, an improving economy has California's unemployment rate under 7%, the lowest since May 2008. More gasoline is being used in the state than any time since 2007. The number of highway miles driven Californians in 2014 increased for the third year in a row. Last week, tankers with CARBOB were forced in from Asia and Eastern Canada. Since 2000, California's crude production has plummeted ~30% to 555,000 b/d. Foreign suppliers have doubled their share of crude to over 50%. California remains far removed from both the massive Gulf Coast refining complex and the shale oil boom occurring in the middle of the country. And more oil trains and barges face significant challenges in reaching the Golden State with that cheaper tight oil (see here and here).
Gov. Jerry Brown's goal to put a million electric vehicles by 2023 is a realistic one but should be kept in perspective. California now has about 33 million registered vehicles, and 95% of its transportation fuel comes from petroleum-based fuels. Electric vehicles, which can actually increase home electricity use by 50% or more, in California are more natural-gas cars than anything else. Since 2003, the first year of the Renewable Portfolio Standard, gas has extended its share of state power generation from 47% to 60%. Wind and solar supplied 7% and 5% last year, respectively. A potential mileage tax program to reduce the sales tax would contradict state goals by penalizing both more efficient vehicles that can drive farther distances per gallon and electric vehicles that don't use gasoline. In recent years, California has been losing tax revenues to pay for much needed transport infrastructure from lower gasoline sales (see here).