Cost of Living Energy & Gas Prices

Energy & Gas Prices

Reads at about grade 5Both sides shown10 sources cited

California has the highest gas prices in the country, and people fight over whether the state's climate rules or the oil companies are more to blame.

What it is

Californians pay more for gas than anyone else in the country, and part of the reason is easy to see. California has the highest gas taxes in the nation, adding about 90 cents per gallon. The state also has two climate rules that raise the price: cap-and-trade, which makes fuel companies buy permits to release carbon and adds about 25 cents a gallon, and the Low Carbon Fuel Standard, which pushes gasoline to burn cleaner and adds about 17 cents on top of that. California also makes most of its own gas, and pipelines do not easily bring fuel in from other states, so the state is somewhat cut off -- when supply gets tight, prices can swing sharply. The federal Energy Information Administration says environmental rules added as much as 54 cents a gallon in early 2025, and economists agree these costs get passed on to drivers. But taxes and rules do not explain the whole price gap. After you subtract them, a large "mystery" gap is left that experts have not fully explained. State officials studied prices and found no proof of illegal price gouging. Now two large refineries are closing, which will cut about 17% of the state's refining capacity, and forecasters expect prices to swing even more. The debate is over what, if anything, to change.

How it works

California's gas market is unusual. The state sits far from other oil refining hubs, and pipelines do not easily bring fuel in from other states, so most gas used in California is made in California. California also fights air pollution and climate change using rules most other states do not have, including cap-and-trade and the Low Carbon Fuel Standard -- both meant to cut carbon and clean the air, and both add some cost to fuel. Supporters say cleaner air is worth the extra cost; critics say the rules make gas too costly for families who must drive. A second fight is about the oil companies. When prices spike, some people blame refinery profits, while others blame tight supply and the state's rules. Now two refineries are closing, which raises the stakes for both sides.

The debate — equal weight, both sides

The case for cutting fuel rules to lower prices

Most often made by free-market think tanks, the oil industry, and California Republicans.

This side says California's high prices are mostly its own doing: more than half the cost of a gallon here comes from state rules and taxes, not world oil prices. The gas tax is the highest in the nation, cap-and-trade adds roughly 20 to 30 cents a gallon, and the Low Carbon Fuel Standard adds a further charge on top -- one set to climb sharply as the rules tighten. One industry group says it could rise from about 11 cents to 47 cents a gallon. Stacked together, these costs make drivers pay far more than they need to. This side also says the rules push refineries out of business. Two big refineries are closing, erasing close to 20% of the state's refining capacity -- and fewer refineries means tighter supply, which means sharper price spikes. The fix, this side says, is to roll back the rules: reform or pause the Low Carbon Fuel Standard, and let California buy more fuel from the rest of the country. Cheaper gas would ease costs for the millions of families who must drive.

The case for keeping the rules and curbing refiners

Most often made by consumer advocates, environmental and public-health groups, and California Democrats.

This side says the climate rules are worth their cost, and that oil companies, not the rules, deserve the blame for price spikes. California's clean-air and carbon programs save lives: one review found their health and climate benefits were close to five times their cost -- about $19.7 billion in benefits against $4.1 billion in cost. The rules cut pollution and lead to cleaner air and better health. As for high prices, this side says taxes and rules are not the real villain. By one consumer group's count, only about 87 cents of California's higher price is explained by taxes and environmental fees; the rest, they say, is refiner profit, which recently jumped to $1.24 a gallon. "This is not a crude oil problem, it's a refiner profiteering problem," the group Consumer Watchdog says. The answer, this side argues, is not to gut the climate rules, but to hold refiners accountable for their profits.

Sources

Behind the summary

Cited by "The case for cutting fuel rules to lower prices"

Cited by "The case for keeping the rules and curbing refiners"

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