Californians suffer at the gas pump more than most Americans, with an average of $4.50 per gallon and about one dollar more than drivers elsewhere. Governor Gavin Newsom has long blamed the greed of Big Oil, but the real cause is the combination of high taxes and overregulation enacted by state lawmakers.
Golden State residents face the highest gasoline tax in the nation, nearly 90 cents per gallon – comprised of a 61 cent state gasoline excise tax, the highest across U.S. states; a 10 cent state and local sales tax, creating double taxation; and an 18 cent federal gasoline excise tax applied across the country.
The state’s climate programs add another 38 cents per gallon. California’s cap-and-trade program places a price on greenhouse gas emissions that the oil and gas industry incur, and these costs are passed onto the consumers at the gas pump. Another program, the Low Carbon Fuel Standard, penalizes gasoline with extra costs that are passed onto drivers. California’s programs are government attempts to mitigate climate change, but it is not an existential threat that justifies costly policies.
Refineries that convert crude oil into gasoline, diesel, and jet fuel must comply with these climate programs as well as other burdensome regulations. Recent rules – like the mandate to maintain minimum gasoline reserves, which imposes additional storage costs, and detailed data collection rules targeting the oil industry – have made it increasingly difficult for refiners to operate in California.
Consequentially, one refinery in Los Angeles is shutting down this year and another in Benicia will close by next April, together eliminating 17% of the state’s oil refining capacity. The Benicia refinery is closing after years of regulatory burdens, substantial penalties from air quality violations, and an environmental lawsuit settlement, according to the company.
California mandates the use of a special blend of gasoline for cleaner air, and this more expensive fuel is only used within the state. As a result, California mainly relies on its own refineries, and when refineries shut down, gasoline prices rise.
As refineries close, California’s oil production also dropped significantly. The Golden State produced about 1 million barrels of crude oil per day in 1981 but only 300,000 barrels per day in 2024. To make up for that loss, the state relies on 63% of its crude oil from foreign sources. Despite 30 billion in crude oil reserves, production remains low. Since Governor Newsom took office in 2019, drilling permits have decreased from 2,664 to 73 in 2024.
High gasoline prices disproportionately hurt lower-income households that spend a larger share of their income on this necessity. Many rely on older, less fuel-efficient cars and cannot afford electric vehicles or newer models with better fuel economy.
Sacramento is starting to wake up to its costly policies on gasoline. Lawmakers recently passed a bill that can fast-track up to 2,000 new oil drilling permits every year in the oil-rich Kern County. The California Energy Commission delayed its implementation of a profit cap on gasoline refiners for five years. But these steps are not nearly enough to undo the harm caused by thick layers of overregulation and taxation.
California lawmakers should lower the state gasoline excise tax closer to the national average of 28 cents per gallon, eliminate sales taxes on the fuel to prevent double taxation, repeal the costly climate programs, and create a business-friendly environment that does not punish oil producers and refiners, saving about one dollar per gallon. Oil remains vital to Californians’ prosperity, and the Golden State would do well to realign its policies to reflect this reality.
Austin Gae is a research associate in the Center for Energy, Climate, and Environment at The Heritage Foundation.