California leads the nation in additional methods than one — taxes, laws, and, as soon as once more, gasoline costs. As of mid-Could 2025, the common gasoline worth in California is $4.85 per gallon, far above the nationwide common of $3.26, in keeping with GasBuddy and AAA.
And it’s getting worse. A March 2025 examine by USC Professor Michael Mische forecasts California’s gasoline costs might spike 75 p.c to over $8 per gallon throughout the subsequent 12 months. That’s not hyperbole — that’s the trajectory until policymakers reverse course.
The offender? It’s not oil firms or international demand. It’s many years of state-level tax hikes, regulatory overreach, and misguided local weather mandates which have warped the gasoline market in California. This can be a man-made downside — a case examine in authorities failure, not market failure.
What Actually Drives Gasoline Costs
In line with the US Vitality Data Administration (EIA), gasoline costs are usually formed by 5 elements: crude oil costs, refining prices, distribution and advertising and marketing, taxes, and laws. In California, taxes and regulatory prices alone account for greater than $1.30 per gallon — practically double the nationwide common.
California has the very best gasoline tax within the nation, at $0.678 per gallon, not together with extra charges and environmental surcharges. Add within the Cap-and-Commerce program, the Low Carbon Gasoline Normal (LCFS), and boutique gasoline blends which are required solely in California, and it turns into clear why Californians pay extra.
And issues are deteriorating additional. The Mische examine warns that with refinery closures as a consequence of hostile allowing processes and low anticipated returns below California’s local weather mandates, gasoline provide within the state might drop by 20 p.c by 2026, at the same time as demand stays comparatively secure. Fewer refineries and inflexible gasoline requirements will imply tighter provide and better costs.
Texas vs. California: A Story of Two Gasoline Markets
To see how dangerous California’s insurance policies are, look no additional than Texas. As of Could 2025, Texas drivers pay about $3.00 per gallon, practically two {dollars} lower than Californians. Texas levies a mixed state gasoline tax of simply $0.20 per gallon, and its regulatory construction is streamlined and energy-friendly.
Texas refineries aren’t topic to California’s carbon credit score system or compelled to supply pricey special-blend fuels. And since it permits for a extra aggressive and open gasoline market, the state advantages from each decrease wholesale costs and extra environment friendly distribution. The distinction is stark — and instructive.
The Fallacy of “Inexperienced” Gasoline Mandates
Supporters of California’s method declare excessive costs are a obligatory value for preventing local weather change. However what if these insurance policies aren’t really working?
California’s greenhouse gasoline emissions have declined, however a lot of the discount has come from cleaner electrical energy technology, not gasoline insurance policies. In the meantime, low-income and working-class Californians are being punished on the pump whereas driving older, much less fuel-efficient automobiles.
This quantities to a regressive tax that hurts the very folks politicians declare to guard. Worse, these guidelines don’t scale back international emissions — they only push power manufacturing and refining out of the state and abroad, usually to international locations with weaker environmental requirements.
The Financial Price of Fragmented Gasoline Insurance policies
In my educational work, together with a peer-reviewed paper and subsequent analysis (SSRN profile), I’ve documented how state-level fragmentation of gasoline markets — by way of taxes, environmental packages, and infrastructure restrictions — creates pricey inefficiencies that drive up costs.
These insurance policies discourage new funding in refining and gasoline transportation. They create synthetic shortages. And so they enhance transaction prices that finally fall on customers.
In brief, California’s mannequin is a textbook case of how overregulation and authorities micromanagement destroy affordability with out delivering proportional advantages.
What Ought to Be Accomplished As a substitute?
The reply isn’t new subsidies or “inexperienced” credit. It’s not banning gas-powered automobiles or rationing car miles. The answer is to embrace free-market capitalism and the ideas Milton Friedman championed: let costs replicate market situations, not bureaucratic preferences.
Meaning:
Repealing California’s Cap-and-Commerce and LCFS packages.
Standardizing gasoline blends to match these used nationwide.
Halting the gasoline tax will increase scheduled below present regulation.
Encouraging personal funding in refining and gasoline infrastructure.
The federal authorities might assist by streamlining interstate pipeline allowing and revisiting federal environmental guidelines that duplicate or exacerbate state mandates. However the true change should come from Sacramento.
Conclusion: A Disaster of Coverage, Not Value
California’s excessive gasoline costs aren’t the product of world volatility or grasping companies. They’re the results of an extended sequence of deliberate coverage decisions that make gasoline tougher to supply, tougher to move, and tougher to afford.
When authorities picks winners and losers in power markets, customers lose. And when politicians mistake management for competence, they create techniques that serve ideology reasonably than actuality.
It’s time to desert the parable that prime gasoline costs are the value of progress. California has created a man-made gasoline disaster — and solely free-market reforms can resolve it.
