Governor Newsom has called the California Legislature into a special session to deal with high gas prices. The national average for regular gas the first week of October was $3.182/gal. The average for the same gas in California was $4.667/gal., or almost a dollar and a half higher per gallon.
But, if you think Gov. Newsom and the legislature can fix the problem of high gas prices, you either aren’t paying attention or are new around here. They created the problem. Their proposed solutions will just make things worse.
According to the governor, the special legislative session will address gasoline price spikes and the erratic, high cost of gas at California pumps. It will do so with a combination of harebrained ideas floated by California legislators and regulators, none of which offers a chance at success, and all of which will increase prices and the number and severity of price spikes.
California leads the nation in gas taxes. That is a big reason for the high prices the governor wants to bring down. Gov. Newsom does not propose cutting those taxes, though.
California requires a unique blend of summer gasoline, ostensibly to reduce air pollution. The cost of manufacturing and transporting that blend is another big reason for California’s high gas prices. Gov. Newsom does not propose eliminating that pricey gasoline blend.
California refineries operate under some of the nation’s most onerous regulatory rules, driving up the cost of compliance, costs naturally then passed on to the consumer in the form of higher prices. Gov. Newsom does not propose reducing the regulatory burden.
California severely limits the pumping of oil, onshore and offshore, despite the state’s significant proven reserves. These artificial limitations require refineries to import and pay to transport those imports from more enlightened distant states. The cost of the resulting gasoline is naturally higher than it would be had local oil been tapped. Gov. Newsom does not propose freeing up local oil fields. In fact, this legislative session, he signed a bill adding more restrictions on California oil production.
In short, Gov. Newsom and the legislature propose none of the obvious fixes to California’s high gas prices, fixes that might actually work.
What does Sacramento propose instead? The harebrained ideas under discussion include taking over some refineries and imposing costly additional regulations on the refineries they don’t take over. Really.
And it won’t quite work.
Imagine California taking over and trying to run privately owned oil refineries. The Constitutionality of such a move is obviously quite suspect. But that aside, just consider for a moment putting in charge of California’s gasoline production facilities the very folks who have already proven entirely ignorant of how the industry functions and of those policies discussed above which drive up the very costs they allegedly want to lower. Surely no reasonable person believes state politicians can successfully and efficiently run the incredibly complex oil refining business. Chaos, not lower prices, will ensue.
And as for those lucky refineries the state does not take over, California legislators propose mandating that they stock higher levels of oil reserves as a buffer against shortages, and that the refineries themselves pay for the new storage facilities and all of that extra oil required by the plan. But, of course, driving up capital and inventory costs certainly does not lower prices. Never in the history of the free market has increasing costs at the manufacturing level reduced costs at the retail level. Economics does not work like that.
Several years ago, the then-mayor of Philadelphia, Jim Kenney, demonstrated his economic illiteracy when he couldn’t understand why retail soda prices were higher after he imposed a soda tax at the manufacturing level. He was flummoxed because, he explained, the tax was not on the retailers. Kenny’s explanation: retailers were “gouging” their customers by passing along the increased costs.
Gavin Newsom’s refinery plan follows in the befuddled tradition of Mayor Kenney. California usually leads in the incubation of reality defying leftist pipe dream policies. We have no need to import them from a clueless ex-Philly mayor.
Newsom’s special legislative session has no hope of reducing high gas prices and shortages if it refuses to address the actual cause of such high prices and shortages — California’s own anti-competitive, anti-free market behavior.
Don Wagner serves on the Orange County Board of Supervisors. He previously served in the California Assembly.
