The conceit of energy planning is driving up California’s gas prices

California has been losing oil refining capacity for years, and two more refineries are currently closing – the Phillips 66 facility in the Los Angeles area and the Valero refinery in the Bay Area. Together these facilities accounted for around 20% of the state’s capacity.

Replacing this lost capacity should be a top priority for state legislators. Without a sustainable replacement, regular gasoline could cost $8.44 a gallon by the end of this year according to an analysis by University of Southern California Professor Michael Mische. 

Gas prices over $8 a gallon would be an economic and financial disaster. 

Recently, the State Senate held a hearing on the situation. You would think the hearing would focus on alleviating the costs that are driving away refineries and inflating gas prices. Think again.

California Energy Commission Vice Chair Siva Gunda told lawmakers, “this is not going to be a smooth transition.”  

Then, as KCRA-TV reporter Ashley Zavala reported, Gunda concluded “his remarks by essentially stating state agencies are not all in agreement on how to handle this.”

Not to be outdone, far too many legislators and bureaucrats focused on energy transition issues that arise after oil refineries shut down – ignoring the core affordability concerns. 

Listening to this, I imagined 1930’s-era lawmakers holding a hearing on the Hindenburg crash focusing on the flight patterns instead of the hydrogen leak.

When securing adequate supplies was discussed, the conversation was unserious. For instance, the idea of state-owned refineries was raised, which demonstrates a complete misunderstanding of the problem.

Another lawmaker, Sen. Henry Stern, D-Los Angeles, asked if other countries or factors were to blame for California’s rising gas prices and refinery closures. We don’t need a hearing to answer that question.

Californians pay the highest gasoline prices in the country because the state imposes the costliest taxes and mandates. These include the highest excise tax in the nation, which is 61.2-cents per gallon. Environmental regulations including the low carbon fuel standard, cap-and-trade program, and reformulated gasoline mandate that add at least 64-cents per gallon in additional costs and could become significantly more burdensome in the future. 

Then there are the 2-cent underground storage fee and the 4 percent average state and local sales tax. Overhead costs are also higher due to the labor and energy mandates that drive up the costs of operating any business in California including refiners and gasoline stations.

Gasoline prices also reflect the growing number of regulations on oil refineries, which significantly increase their operation costs and make it increasingly unprofitable to refine gasoline in the state. These mandates, which include price and profit controls and stringent minimum fuel inventory requirements, are also why so many refineries are closing shop in the Golden State. Perhaps this warrants the attention of lawmakers.

Worsening the market further, California’s stringent formulation requirements make it difficult for alternative refiners to easily replace lost supply. When coupled with the continued loss of in-state refineries, there is an inherent imbalance between the supply and demand for California gasoline.

The California Energy Commission (CEC) expects this gap to grow over the foreseeable future even though the agency projects that the demand for gasoline will continue to decline. Insufficient supplies will likely be an even larger problem than the CEC expects because the energy transition is not proceeding as expected. 

A slowdown in EV sales raises concerns that oil demand will remain much stronger than expected. There are 2.5 million zero emission vehicles on California’s roads, yet sales have stagnated. Sales fell to around 23% of all newly-registered cars in 2025. 

This shows that it is very unlikely that zero emission vehicle sales will reach their mandated goal of 35% of all new cars sold for the upcoming year. Should sales be inadequate, then automakers will face steep financial penalties, further increasing costs for consumers. 

Since state policies will continue to excessively inflate gasoline costs, the financial burden from these policies will directly harm more Californians than expected.

According to the DMV, there are nearly 36 million registered vehicles in the state. With an estimated 2.5 million EVs, this means that nearly 93% of all vehicles on California’s roads are gasoline powered cars. These numbers indicate that a majority of Californians – especially lower-income families – will be driving gasoline powered cars for the foreseeable future and are subject to these excessively large costs. 

Without a policy reversal, families across the Golden State will face worsening affordability problems. Restoring gasoline affordability requires state leaders to repeal the state’s burdensome energy mandates and lower the state’s gasoline taxes. Particularly important are removing the regulations inflating refining costs in the state and overly restricting gas supply options.

Following the hearing on refinery closures, Sen. Suzette Martinez Valladares, R-Santa Clarita, called “for a special legislative session to confront California’s rising gas prices and the policy decisions driving them.” If policymakers want to meaningfully address the state’s problem of growing unaffordability, this is an essential first step.

Wayne Winegarden, Ph.D. is a Senior Fellow in Business and Economics at the Pacific Research Institute. He can be reached at wwinegarden@hotmail.com