California Figures Out How to Make Gasoline Even More Expensive

A vehicle waits in traffic next to displayed gasoline prices at a Mobil gas station in Beverly Boulevard in West Hollywood, Calif., March 10, 2022. (Bing Guan/Reuters)

They said it couldn’t be done.

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They said it couldn’t be done.

NRPLUS MEMBER ARTICLE G overnor Gavin Newsom delivered an early Christmas present this past week to Californians affected by high gasoline prices: a special session of the state legislature designed to punish oil companies for recent gasoline-price spikes.

A lump of coal — packed with the carbon of ages — would have been better.

The legislators — many elected just last month and sworn in minutes before the special session — listened while speakers denounced oil refiners as greedy, dishonest, and predatorial. They promised (the legislators did) to convene again in January to consider a proposal drafted by the governor and the state’s dean of green, Bay Area state senator Nancy Skinner (D., Berkeley). Her bill would hit refiners with a “price-gouging penalty” on excessive profits. “Excess” will, of course, be defined by state regulators.

“California’s price-gouging penalty is simple — either Big Oil reins in the profits and prices, or they’ll pay a penalty,” Newsom said in a press release. “Big Oil has been lying and gouging Californians to line their own pockets long enough. I look forward to the work ahead with our partners in the legislature to get this done.”

If anyone should be penalized for lying, gouging, and pocket-lining, it’s the State of California.

The progressive author Carey McWilliams called California an island in the land. He was speaking of the state’s remarkable geography and politics but might have said the same of the Golden State’s gasoline market. Over decades, Californians have crafted a boutique gasoline market — an island on which drivers can choose only from a unique state-curated menu of exotic fuel blends, including blends that change with the seasons — all of it aimed, of course, at cleaning the air. It’s like the obsessive-compulsive order from your least-favorite Starbucks customer, who demands more but complains about the price. Such regulatory interventions have blocked from California’s gasoline marketplace anyone who can’t compete in this rarefied bazaar; they have destroyed business competition among refiners and retail distributors; they have concentrated market share in fewer hands.

While the rest of the nation’s consumers pay less for their fuel in a competitive, national market — one with more producers and distributors — California wrestles with fewer and fewer of each.

Much of this regulation was designed to clean the air fouled by millions of cars (and, in ye olden days, factories) in the Los Angeles Basin. Many Californians can remember a childhood clouded by smog so severe that they were locked indoors like Midwesterners on snow days; they even called them smog days. In this World Before Air Conditioning, schools, offices, and homes closed their doors and windows and curtailed outdoor activities, especially, of course, driving. This is the state that created the smog check and the catalytic converter and — in a short and stupid, failed experiment — added methanol to our gasoline. Some changes in gasoline helped clean up the Los Angeles Basin, but because (as the state agencies responsible for climate told us in the 1970s) “smog respects no political boundaries,” what was expedient in Los Angeles quickly became necessary across the entire state.

It’s reasonable, in other words, to argue that California regulators monkeyed with fuel recipes and the externalization of other energy-related activities for good purposes. Today, the cost of all state taxes and those exotic blends puts the price per gallon of gasoline in California at about $1.18 higher than anywhere else in the nation.

The governor and his allies call that the “mystery surcharge.” In January, Republican Kevin Kiley, then a state assemblyman from northern California’s Placer County, offered a proposal: Eliminate the largest of the state gasoline taxes. Democrats who control the statehouse refused even to assign Kiley’s bill to a subcommittee. It died for want of air and light. Two months later, with fuel prices rising faster following Russia’s invasion of Ukraine, Kiley asked his colleagues to waive the assembly’s procedures and jump the bill to floor debate. The supermajority clobbered him.

“Today the Republican and Independent Members of the Assembly voted to save Californians 51 cents per gallon by suspending the gas tax. In addition, 18 members abstained from the vote,” Kiley said in a statement. “Unfortunately, the supermajority rounded up enough votes to deny struggling Californians this modest measure of relief. Our state’s political leadership has never been so out of touch.”

There’s no evidence that oil companies are engaged in price-fixing or rigging the California market or taking advantage of shortages. This much has been litigated. A Biden appointee to the federal court listened to months of testimony in a lawsuit brought by attorneys who claimed they would prove price-fixing in the gasoline business. They failed. In October, Judge Jinsook Ohta dismissed their case, saying that oil companies operating in California “certainly have an economic motive to act in the manner alleged by plaintiffs,” but “that alone cannot establish an antitrust violation.” A separate 2020 state lawsuit alleging price-fixing is headed for trial in August 2023.

Pretending not to know that its claims of gouging and price-fixing are fact-free, and ignoring that its own regulations will punish consumers, has become the establishment’s trump card. “No one can deny that California’s gas prices were outrageously high compared to other states. And those high prices hurt California consumers and businesses,” Skinner said. “Putting the Governor’s proposal in print allows the legislature and the public to begin discussions on this important issue.”

In January, a Democratic supermajority will likely approve Skinner’s silly proposal, penalizing the few oil refiners who remain in California for making a profit. But that will work only briefly. In the end, successful businesses don’t really pay taxes. They pass them on to consumers. And so, California’s drivers will pay the new tax on oil producers — even if you call the tax a “price-gouging penalty.” Naturally, poor Californians will feel the pain most exquisitely. But the establishment will have an answer for that too, one that will blame the men and women who produce energy for an increasingly desperate state. The answer to the failures of progressivism: more progressivism.

Will Swaim is the president of the California Policy Center and, with David L. Bahnsen, a co-host of National Review’s Radio Free California podcast.
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