SACRAMENTO — Two Los Angeles Times articles published on Dec. 4 pinpoint the insanity of California’s approach to our nationally high gas prices, which remain around $5 per gallon even as prices have plunged to around $3.50 per gallon in other parts of our country. Seemingly, the gasoline companies are far greedier in California than they are almost everywhere else.
Corporate greed is, according to Gov. Gavin Newsom and the newly more-left-than-ever state Legislature, the reason for our gas-pump sticker shock. “Newsom has accused the oil industry of intentionally ‘price gouging’ consumers at the pump as retribution for the state’s policies to phase out dependence on fossil fuels in an effort to curb climate change,” reporter Taryn Luna notes in the first Times article.
The oil industry’s rebuttal — that the higher prices are the result of “the state’s dependence on a small number of oil refineries,” per the article — seems hard to rebut. But that won’t stop Newsom and the state’s Democrats from pushing their plan for a Jimmy Carter–era “windfall profits tax” on oil companies — or from holding hearings spotlighting the supposed retribution.
Perhaps it’s hard for our leaders to comprehend, but, when they try to shutter an industry, that industry will slow its investing in new production.
In the progressive mind, the economics of supply and demand don’t really matter. That’s obviously a construct of a greedy capitalistic system that exploits people. In their view, there are good guys and bad guys, and the bad guys raise prices to punish people — not based on how much demand there might be for their product or on the number of taxes and costs applied to it.
The second Times article, by Russ Mitchell, helps explain reality to those who read only the first. “The state’s gasoline prices have been at or near the top in the nation for decades,” he writes. “The basic reasons are well known. California’s gasoline taxes are higher, and the state requires special kinds of gasoline to reduce pollution. Plus, refiners pay additional costs in the carbon allowance market.”
Go figure, but higher taxes and a regulatory regime that requires a special formulation — and thereby limits our ability to import gasoline from other states and countries — somehow leads to higher prices. Throw in our cap-and-trade system, which forces producers to buy allowances as the state reduces the number of allowable emissions, and it costs more to produce gasoline here.
Meanwhile, the governor and the California Air Resources Board (CARB) have announced their intention to drive the fossil fuel industry out of the state. Perhaps it’s hard for our leaders to comprehend, but, when they try to shutter an industry, that industry will slow its investing in new production. Only a foolish investor would bolster refining capacity against that backdrop.
If you think I’m exaggerating, consider this statement from the governor’s office last year: “Newsom today directed the Department of Conservation’s Geologic Energy Management (CalGEM) Division to initiate regulatory action to end the issuance of new permits for hydraulic fracturing (‘fracking’) by January 2024. Additionally, Governor Newsom requested that [CARB] analyze pathways to phase out oil extraction across the state by no later than 2045.”
There’s nothing magical about any of this. Newsom and lawmakers are not dummies. They simply have chosen to double down on their climate change agenda and need a scapegoat, as Californians continue to pay so much more for a gallon of gas than their fellow Americans who reside across the border in Arizona, Nevada, or Oregon.
The new, more sophisticated progressive argument accepts the obvious reasons for the higher prices, but they add some nuance. First, they argue that there’s a “mystery surcharge” that oil companies impose on consumers in California. They claim to have calculated the difference in price attributable to the higher taxes and special formulation — and then they say that the companies charge more than should be accounted for by those variables.
I’m unpersuaded. That supposed surcharge, which is only part of the additional per-gallon cost, is a diversion from the real causes (see taxes and regulations above) for our outrageous prices. I don’t believe academics are capable of figuring out the “right” prices for any commodity. That’s determined by market forces.
Here’s their second argument, as that Mitchell article explains: “The retail price of gasoline is likely to rise as refineries and other industry players seek to maximize profit before demand for the product fades away” [emphasis added]. In other words, don’t blame the state government for reducing gas supply and driving out oil-refinery competition. Instead, blame oil-company greed for taking advantage of the situation because, well, it can only be the private sector’s fault.
One University of California Berkeley professor said at a California Energy Commission hearing that the oil industry is playing what the reporter calls “market-shaping games” and called for the state to investigate. The state Legislature also is chomping at the bit to investigate Big Oil, but I’d expect this to be nothing more than a political stunt. It will only encourage more refiners to leave, leading to fewer supplies and, again, higher prices.
This isn’t the only example of a state government that seems to be at war with its own taxpaying, jobs-creating industries. A new study in November from the University of California Merced found that the drought is fallowing farms and costing them and surrounding economies billions of dollars. It blames in part climate change, but the real problem is the state’s failure to expand its water infrastructure.
In October, state regulators considered a ban on gas-powered trucks that would go into effect within two decades — something that could threaten our trucking industry. As prices for food, water, and transportation soar, expect lawmakers to blame the greed of the [fill in the blank] industries because good intentions can’t possibly have bad consequences.
Steven Greenhut is Western region director for the R Street Institute. Write to him at firstname.lastname@example.org.