Why are gas prices so high in California?

You’d be surprised what goes into the price of a gallon of fuel

For nearly three years, California drivers have been shelling out an estimated $3 billion more annually for gasoline than researchers think they should be spending. The problem is, no one knows exactly why.

The Golden State regularly ranks in the top three for retail gasoline prices in the nation, typically falling just below Hawaii and tying with Alaska, where prices are, on average, 60 cents higher than the rest of the nation, according to AAA. And, on Wednesday, California drivers will start paying even more at the pump with the gas tax rising an extra 12 cents, an increase that pushes total federal, state and local taxes to approximately $0.72 per gallon.

But, taxes alone cannot account for California’s high gas prices. In fact, even with the tax increase, Californians will still not be the highest-taxed when it comes to refined oil. That honor goes to Pennsylvania, where residents pay $0.78 in taxes despite the fact that drivers there are paying about 30 cents less at the pump.

Instead, said UC Berkeley economist Severin Borenstein, other factors contribute to higher-than-average prices in California: cleaner-burning fuel requirements that drive up the price by approximately 10 cents, low carbon fuel source requirements that add about 4 cents, the state’s cap-and-trade program that contributes another roughly 12 cents, and one other factor — a “mystery surcharge” — that researchers have yet to explain, though they think

it adds another approximately 20 cents per gallon.

“Some of it is probably profiteering by the refineries, but I don’t know how much,” Borenstein said. “Some of it is probably logistical constraints (in the supply chain).”

In late 2014, the California Energy Commission tasked Borenstein and four other experts to form the Petroleum Market Advisory Committee and determine why gas prices were so high in California. But, not too long after the five members started meeting, an explosion in February 2015 at Exxon Mobile’s refinery in Torrance cause a major disruption to the oil market in California, causing gas prices to spike while the refinery was shut down.

The committee anticipated the price spike, which often occurs when there is a sudden disruption in supply. But, they didn’t expect prices to remain high, even months afterwards when production levels at the refinery returned to normal. Since that time, Borenstein said prices have remained higher than they would have been before the explosion.

“The question is what changed?” he said.

The committee released a report on their findings last month. The big conclusion? More research is needed to determine if fingers can be pointed at big oil companies possibly colluding to limit supply, and thus, raise prices, or if other factors, such as the cost of transporting or refining the oil, are to blame.