California has the highest gasoline prices and one of the highest residential electricity prices in the nation due to its climate and energy policies. However, rather than own up to the real causes, California Governor Newsom is looking to camouflage the reality of his state’s policies, at least in the short term. Newsom wants to up the ethanol share in a gallon of gasoline from 10% to 15% to lower the gas price in order to compensate for future price increases from tightening the state’s low carbon fuel standard. And, Newsom has also directed his regulators “to pursue any federal funding available to help lower electricity costs for Californians.” For example, the federal government has provided the Diablo Canyon nuclear plant with $1.1 billion to keep it operating, despite the state originally wanting to close it. The plant provides the state with 9% of its electricity and is its largest source. With this guidance, taxpayers across the nation will be paying for Newsom’s climate and energy policies that include a renewable mandate, a carbon tax via a cap-and-trade system, and net metering for rooftop solar.
Policies that Affect Gasoline Prices
California is set to strengthen its low carbon fuel standard, which mandates an annual reduction in the carbon intensity of transportation fuels sold in the state. This will require refineries to blend more renewable fuels into gasoline and diesel. As a result, gas prices could rise by 8 to 10 cents per gallon, depending on the outcome of a vote on the standard scheduled for November 8. This potential price hike comes on the heels of a new California law that mandates refiners to maintain larger fuel inventories than the current two-week minimum, intending to prevent supply shortages and price fluctuations. To comply, refiners will need to make significant investments in infrastructure to store and regularly replenish this inventory, as gasoline has a limited shelf life. These regulatory changes have already led to the announced closure of a major Phillips 66 refinery in Los Angeles, which accounted for 8% of the state’s refining capacity. The shutdown will reduce fuel availability, contributing to higher prices. Additionally, California may face further supply challenges as Valero may close two more major refineries, which produce 14% of the state’s gasoline, according to Just The News.
California’s geographic isolation from the U.S. refining centers in the Gulf Coast and Midwest forces the state to either produce all its motor fuels locally or import them. This, combined with its unique environmental regulations and higher taxes, has made California home to the highest gasoline prices in the country, due to its specialized “boutique” fuel. As of November 4, the average price for gasoline in California was $4.55 per gallon—roughly 50% higher than the national average and comparable to Hawaii. One potential solution to ease the price pressure is increasing the ethanol blend from 10% to 15%, which could boost the state’s gasoline supply by 5% to 10%, thereby lowering prices.
Once a leading oil producer, California’s output has dropped by about 35% since Governor Gavin Newsom took office in January 2019, while other oil-producing states have seen increases. Newsom has also signed legislation allowing local governments to block new oil wells and has effectively halted the issuance of new drilling permits, further curbing oil production in the state.
Policies Affecting Electric Rates
According to the Energy Information Administration, California’s residential electricity prices are the second highest in the nation after Hawaii. At 32.56 cents per kilowatt hour, California’s average residential electricity price is almost double the national average of 16.62 cents per kilowatt hour. As mentioned above, California has several policies that result in higher electricity prices than in other states.
California has set ambitious renewable energy goals under its renewable portfolio standard, which mandates that 60% of the state’s electricity come from renewable sources—primarily intermittent wind and solar—by 2030. By 2045, the state aims to achieve 100% renewable energy, with interim targets of 90% by 2035 and 95% by 2040. These goals are becoming increasingly difficult to meet, particularly as the state introduces additional mandates for electric vehicles (EVs) and appliances, and even plans to replace diesel-powered trains with battery-electric ones. Starting in 2026, state regulations require that 35% of all new cars sold in California be zero-emission, with that figure rising to 100% by 2035. Achieving these ambitious targets and electrifying other sectors of the economy will demand that California nearly triple its electricity generation capacity. To do so, the state must accelerate the deployment of solar and wind energy at a rate nearly five times faster than in the past decade—despite the intermittent nature of these power sources. In addition, California has set its sights on generating 13% of its electricity by 2045 from floating offshore wind platforms, which are expected to be extremely costly, running into billions of dollars.
To help mitigate the risk of power shortages, California’s utilities have invested heavily in expensive battery storage systems. These batteries are designed to store excess energy produced by solar and wind power when supply exceeds demand and then discharge the stored energy when renewable sources are unavailable. State lawmakers have instructed utilities to add more of these costly batteries and also to provide subsidies for homeowners to install them, which is expected to raise electricity prices for consumers. Moreover, as China controls a significant portion of the global battery market, this means that an increasing share of California’s electricity grid will depend on foreign supply chains, particularly from China.
California’s “net metering” program for rooftop solar forces utility customers to subsidize the electric bills of homeowners who have solar panels, as they sell their excess electricity to the grid at retail rates, 2 to 3 times as high as wholesale rates, thereby avoiding paying for transmission and distribution services. According to the Wall Street Journal, about 10% to 20% of the electric bill of the average utility customer without rooftop solar subsidizes homeowners who can afford rooftop solar systems. The California Public Utility Commission’s Public Advocates Office estimates that net metering will cost customers without solar panels $8.5 billion this year, up from $3.4 billion in 2021. California also has “public benefit” programs to subsidize lower rates, electric appliances, and vehicles for lower-income households.
California operates a cap-and-trade program that requires its natural gas-fired power plants—responsible for 36% of the state’s electricity generation—to purchase emissions permits, which allow them to release carbon dioxide into the atmosphere. The cost of these emissions permits is passed on to consumers in the form of higher electricity rates. To help offset some of these increased costs, the California Public Utilities Commission provides customers with biannual “climate credits” on their bills, distributed in April and October. The primary goal of the cap-and-trade system is to raise energy prices, incentivizing consumers to reduce their energy consumption.
While California’s mild climate along the Pacific coast may make it easier for many residents to conserve energy without sacrificing comfort or productivity, this does not hold true for inland areas. In these regions, where temperatures can soar and incomes tend to be lower, the pressure to cut back on energy use may be much harder to manage. For residents in these areas, higher electricity prices can place a significant strain on their finances, exacerbating economic challenges.
Conclusion
California Governor Newsom’s climate and energy policies are causing its energy prices to be some of the highest in the country. And, unfortunately, he is continuing his climate programs and creating new ones that will result in even higher energy prices. Rather than admit that he wants higher prices so that Californians will use less energy, he has directed his regulators “to pursue any federal funding available to help lower electricity costs for Californians.” That is, he wants the rest of the country to subsidize his energy program, which the Biden-Harris administration is doing through the Democrat-passed Inflation Reduction Act that is costing taxpayers trillions in green subsidies. Vice President Kamala Harris broke the tie in the Senate that passed the bill and she is likely to pursue California’s energy programs and may even appoint Governor Newsom to an important Cabinet position if elected to the U.S. Presidency.
