Policies enacted in California are contributing to elevated gasoline prices not only within the state but also in neighboring Western states, according to a report by the Institute for Energy Research. While global factors like the Iran war have impacted national gas prices, the report suggests California's specific regulations and market conditions are widening the price difference between Democratic and Republican-led states.
Nationally, gas prices have risen, but the report indicates that over the past five years, prices increased by 86 cents per gallon in Democratic states compared to 62 cents in Republican states. This year, gas costs an average of 55 cents more per gallon in states with Democratic leadership, according to the analysis.
The report identifies California, Oregon, Washington, and Hawaii as key contributors to this price disparity, particularly for West Coast states. The price gap in this region specifically escalated in 2022, reaching a premium of 91 cents per gallon this year. This timing aligns with the implementation of California's cap-and-trade program, a carbon-pricing initiative, and a concurrent wave of oil refinery closures in the region.
Washington state adopted a similar cap-and-trade program following California's lead. Concurrently, the cost of cap-and-trade allowances in California roughly doubled between 2021 and 2023. The region also experienced several oil refinery shutdowns, with some citing California's policies impacting the fossil fuel industry as a contributing factor. Notable closures include the Phillips 66 refinery in Los Angeles and the Valero refinery in Benicia, which have reduced the fuel supply and subsequently increased prices.
According to the report, California's policies extend their influence to neighboring states like Nevada and Arizona, where residents face an additional 52-cent-per-gallon premium on gas. This spillover effect is attributed to the West Coast's isolated infrastructure, limiting the transport of crude oil from other regions such as Texas or the Gulf Coast. Nevada and Arizona, therefore, depend on oil refined in California.
Additional factors contributing to higher gas prices in California, and consequently across the region, include high taxes and stringent environmental regulations requiring specialized gasoline blends. The report suggests that California could mitigate some of this price increase without abandoning its climate agenda. The authors propose that acknowledging the need for sufficient refinery capacity within the state to meet its policy objectives would significantly help in lowering gas prices.