Why California Usually Pays More at the Pump for Gasoline

May 06, 2025

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by Anne Miranda and Tara Bennett-Chirico (U.S. Department of Energy Energy Information Administration) Retail prices for regular grade gasoline in California are consistently higher than in any other state in the continental United States, often exceeding the national average by more than a dollar per gallon. Several factors contribute to this high price, including state taxes and fees, environmental requirements, special fuel requirements, and isolated petroleum markets.

Taxes and fees
The components of retail gasoline prices are taxes and fees, distribution and marketing, refining costs, and crude oil prices. Drivers in California pay the highest taxes at the pump, equivalent to $0.90 per gallon (gal) between local, state, and federal taxes as of March 2025.

Federal taxes—which are the same for each state—account for $0.18 of the $0.90/gal in taxes. The other $0.72/gal is made up of state excise tax ($0.60/gal), state sales tax ($0.10/gal), and an underground storage tank fee ($0.02/gal). California’s state gasoline excise tax is the highest in the United States; the average across all states is $0.28/gal.

California regular gasoline price by component

Data source: California Energy Commission

Environmental requirements
In addition to state taxes, the California Energy Commission estimates that environmental compliance costs added as much as $0.54/gal as of March 2025. The state’s Cap-and-Trade Program and Low Carbon Fuel Standard reflect costs associated with fuel supplier emissions and carbon intensity, and these costs are ultimately reflected in the price consumers pay at the pump.

Special fuel requirements
California also mandates a special blend of gasoline designed to reduce pollution and improve air quality. This fuel burns cleaner but is more expensive to produce because it requires more processing steps and expensive blending components.

Refiners outside the state only make this blend to supply California’s market, meaning that California primarily relies on in-state refineries for its gasoline supply.

Isolated petroleum markets
Supply side issues also contribute to higher California gasoline prices relative to the rest of the country.

Most of the gasoline consumed in California is refined within the state due to lack of petroleum infrastructure connections. California is geographically isolated from other U.S. refining centers because no pipelines supply California from across the Rocky Mountains and only a limited number of pipelines deliver to the West Coast from the Gulf Coast. Of the refineries outside of California with physical access to the state’s gasoline markets, only a few can meet California’s stringent fuel blending requirements.

California also imports gasoline from other countries, such as India and South Korea, to meet its fuel supply needs. Other countries produce California-specification gasoline, but high shipping costs usually limit imports to periods of refinery outages or the summer driving season.

In addition, West Coast refineries have historically maintained lower inventory levels compared with the U.S. average, and California refineries have been closing, with more closures on the horizon. All of these supply chain issues mean that California gasoline prices are more volatile and subject to large spikes, especially if any of the limited number of refineries go offline for maintenance or have an unexpected outage. READ MORE

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California refinery closures panic politicians (Argus Media)
California losing another refinery, impacting AZ and NV; fuel shortages possible (The Center Square California)
California bill aims to expedite availability of E15 (Ethanol Producer Magazine)
Strong 2024 E85 Sales Show California Is Primed for E15 (Growth Energy)
Why are all the oil refineries leaving California, and is it time to do something about it (Fox26News; includes VIDEO)
Refinery closures increase uncertainty about California’s fuel future (The Hill)
Valero to shutter at least one of its California refineries (Oil & Gas Journal)
California’s Refinery Situation Looks Like It Will Get Worse (Institute for Energy Research)

Excerpt from Argus Media: California could lose up to 17pc of its refining capacity within a year, triggering major concerns about its tightly supplied and frequently volatile products market.

US independent Valero announced on 16 April that it will shut or repurpose its 145,000 b/d Benicia refinery near San Francisco by April 2026. The firm is also evaluating strategic alternatives for its 85,000 b/d Wilmington refinery in Los Angeles. And independent Phillips 66 said in October that it would shut its 139,000 b/d Los Angeles refinery in the fourth quarter of this year.

Valero's Benicia announcement brought a quick reaction from state officials. Governor Gavin Newsom on 21 April urged regulators at the California Energy Commission (CEC) to work closely with refiners through "high-level, immediate engagement" to make sure Californians have access to transport fuels. He has ordered them to recommend by 1 July any changes to California's approach that are needed to ensure adequate fuel supply during its energy transition.

The message appears to have hit home. The CEC delayed a vote on new refinery resupply rules to provide time for additional feedback and consultation with stakeholders after the Valero announcement. The CEC also plans to introduce a rule this year for minimum inventory requirements at refineries in the state as well as possible rules on setting a refiner margin cap.

The new rules are part of an effort by Newsom to mitigate fuel price volatility in California, including the signing of two pieces of legislation known as AB X2-1 and SB X1-2. Refiners have been unhappy with the state's regulatory and enforcement environment for some time. It is "the most stringent and difficult" in North America owing to 20 years of policies pursuing a move away from fossil fuels, Valero chief executive Lane Riggs says.

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Refinery closures will force California to rely on imports in the longer term, leaving the state exposed to stretched supply lines. State regulators' proposed solutions have raised eyebrows. The CEC's Transportation Fuels Assessment report in August last year included a policy option in which California would buy and own refineries, which the state is not pursuing. Another option involves state-owned products reserves to allow rapid deployment of fuel when needed. The CEC and Carb regulators will also release a draft transportation fuels transition plan later this year. READ MORE

Excerpt from The Center Square California: These new regulations empower the state to determine when refineries are allowed to shut down for maintenance and set new inventory storage requirements that would require refineries to build vast new storage tanks to smooth out shortages

With the state’s ban on the sale of new gas-powered cars in 2035, new refineries are not being built, leaving remaining refineries operating at nearly 100% capacity at all times. As a result, outages at even a single refinery result in spikes in gas prices.

Arizona Gov. Katie Hobbs, a Democrat, and Nevada Gov. Joe Lombardo, a Republican, sent a joint letter to Newsom urging him not to sign his new refinery regulations into law, citing their fear that they would lead to gasoline price spikes and shortages.

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Newsom’s director of the Division of Petroleum Market Oversight at the California Energy Commission has said that because California is a profitable area to run a refinery, that the regulations would have little impact.

“California is part of the most profitable area in the country,” said Milder at a state hearing while the governor’s regulations were under consideration. “There’s no reason that these companies cannot operate fairly with a bit more inventory and still make profit and stay in business."

The string of recent closures suggest this is not the case.

In March, Phillips 66 announced it is closing its Los Angeles refinery, which refines 139,000 barrels of oil per day — 8.57% of state refining capacity — by October.

Soon after Newsom signed his regulations into law, Valero announced it would be considering the closure of its two refineries in the state, which process 230,000 barrels of oil per day, or 14.18% of the state’s refining capacity.

Now, Valero has announced that it is closing its Benicia refinery by the end of April 2026 and that it is evaluating “strategic alternatives for its remaining operations in California.”

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Due to the Jones Act, shipping between U.S. ports must be done by U.S. built and crewed ships in rare supply due to limited American shipbuilding capacity. Congress found that in 2022, the United States had just five oceangoing commercial ships under construction, while China had 1,794. As a result, little maritime capacity exists to ship fuel from American refineries in the Gulf Coast, where refining capacity is plentiful, or from Washington state.

Washington’s excess capacity allows it to also supply Oregon, which has no refineries, but because it only refines a total of 246,200 barrels per day, cannot meet California’s growing shortfall.

So long as the Jones Act is in effect. this means most California replacement imports would have to be shipped across the ocean from abroad, subjecting Californians to higher prices and greater price volatility. READ MORE

Excerpt from Ethanol Producer Magazine: California is the only U.S. state that has failed to approve the use of E15. Under a state law implemented in 1999, any regulatory change to California’s gasoline blend requires a multimedia evaluation and approval by the California Environmental Policy Council—an intensive process unique to California.

The multimedia evaluations are conducted by a working group and typically take 2-5 years to complete. They are performed based on a three-tier structure. CARB began the process of a multimedia evaluation for E15 in 2018. A Tier III report, the multimedia risk assessment final report, was circulated to relevant agencies in late 2022, but little progress has been made since that time. As of late 2024, CARB estimated at least another year could be required to complete the multimedia evaluation process.

California lawmakers and Gov. Gavin Newsom took action last year to try to expedite the availability of E15. The California Assembly in October 2024 unanimously approved a bill that aimed to require CARB to complete its multimedia evaluation of E15 by July 1, 2025. The state Senate, however, failed to take action on the bill. After the E15 bill failed, Newsom directed CARB to accelerate efforts to approve E15 sales.

AB 30 was introduced in December 2024 and has been amended twice. The current version of the legislation would allow for the sale of blends of gasoline containing 10.5% to 15% ethanol by volume in the state for use as transportation fuel until CEPC completes its review and publicly posts the findings of its multimedia review of E15 as required by existing law, and CARB either adopts a regulation establishing a specification for E15 or posts an assessment on its website demonstrating that it is not possible for a proposed regulation establishing a specification for E15.

As currently written, the bill would take immediate effect once signed into law to help lower the price of gasoline in California.

Additional information is available on the California legislature website. READ MORE

Excerpt from Growth Energy: “Clearly, the state’s record E85 sales in 2023 weren’t a one-time exception, but the new normal,” said Growth Energy CEO Emily Skor. “When California drivers get the opportunity to save money at the pump and cut carbon emissions at the same time, they seize it.”

“This success with E85 further proves it is time for California to embrace E15,” Skor continued. “As Governor Newsom himself stated last fall, E15 is another biofuel blend with ‘massive potential’ for simultaneously ‘lowering gas prices’ and ‘keeping our air clean.’ Californians deserve access to clean, affordable E15 — which their fellow Americans in every other state already enjoy.”

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E15 is a fuel blend made of gasoline and 15% bioethanol. The U.S. Environmental Protection Agency (EPA) has approved its use in all cars, trucks, and sport utility vehicles (SUVs) made in model year 2001 and newer — that is, more than 96% of all vehicles on the road today. E15 can be found at over 3,700 gas stations in 33 states and is legal for sale in every state except California.

Last summer, drivers saved 10 to 30 cents per gallon by filling up with E15 option compared to regular, or E10. In some areas, E15 saved drivers as much as a dollar per gallon at the pump. Nationwide access to E15 would save consumers $20.6 billion in annual fuel costs, put an additional $36.3 billion in income into the pockets of American families, and generate $66.3 billion for the U.S. GDP. READ MORE