As Californians prepare to head to the polls, or to their mailboxes, to vote in the gubernatorial election, people who vote based on candidates’ support for clean transportation policies and safe streets may have trouble finding good information on candidates’ views on these issues. Thanks in large-part to the massive spike in gas prices in recent months, candidates are shying away from discussing these issues, and instead are focusing much of their time to discuss transportation on how to reduce gas prices.
In an era where Trumpflation has caused prices to rise across the country, affordability has become a major issue in campaigns not just in California, but nationwide. The president’s war with Iran has disrupted oil markets, driving up crude prices and, in turn, gasoline costs. Much of the volatility centers on risks to the Strait of Hormuz, a key shipping route for a significant share of the world’s oil supply. As uncertainty and supply concerns grow, prices rise quickly—adding another layer of cost that California policymakers can’t control.
But even so, California drivers pay the highest gas prices in the country, often $1.50–$2.00 more per gallon than the national average. That gap isn’t driven by a single tax or policy—it’s the result of several overlapping costs, some of which fund public benefits and some of which reflect how the state’s fuel market is structured.
What Drives Higher Gas Prices?
Start with taxes and fees, which are the most visible pieces.
California’s excise tax is about 58 cents per gallon, higher than most states, and there are additional sales taxes that vary by location. On top of that, there are smaller fees tied to underground storage tanks and other regulatory programs. Altogether, taxes and fees typically add 70–90 cents per gallon.
In California, how that revenue is spent is governed largely by Senate Bill 1 and constitutional protections that require gas tax dollars to be used for transportation. The vast majority of funding goes to infrastructure, following a general pattern that holds steady year to year.
Roughly 65–80% is dedicated to roads and bridges, reflecting a “fix-it-first” approach. About half of that goes to maintaining the state highway system through programs like SHOPP (State Highway Operation and Protection Program), while the other half is distributed directly to cities and counties for local streets—everything from repaving to pothole repair. There are also dedicated set-asides, including hundreds of millions annually for bridge maintenance.
Another 13–20% supports public transit and rail, including capital improvements and operations funding through programs like TIRCP (the Transit and Intercity Rail Capital Program and State Transit Assistance).
The remaining ~10% goes toward broader transportation improvements, including congestion relief, freight corridors, and active transportation projects which include bike and pedestrian facilities.
Importantly, these funds are constitutionally protected under Article XIX of the California Constitution, meaning they cannot be diverted to non-transportation uses. A small share—around 2%—is set aside for off-highway uses like parks and boating facilities tied to fuel use outside the road system. The tax itself is also indexed to inflation (57.9 cents per gallon as of 2023), ensuring revenues keep pace with rising construction costs. In short, while Californians pay more at the pump, state law requires that those dollars stay within the transportation system.
The state’s Low Carbon Fuel Standard (LCFS) is a program designed to reduce the carbon intensity of transportation fuels. Fuel producers must either lower emissions or purchase credits, and those costs are passed on to consumers, usually adding somewhere in the range of 10–20 cents per gallon. The tradeoff is that the program funds cleaner fuels, EV charging infrastructure, and other emissions-reduction efforts.
Another factor is cap-and-trade (or, if you work for Gavin Newsom, “cap-and-invest”), California’s broader climate program that puts a price on carbon emissions across multiple sectors. For gasoline, that adds roughly 20–30 cents per gallon, depending on market conditions. Like LCFS, this revenue is reinvested into climate programs, including transit, affordable housing near transit, wildfire prevention, and high-speed rail.
But taxes and climate policies don’t explain the full price difference. A major driver is California’s unique fuel blend requirements.
The state mandates a cleaner-burning gasoline formula to reduce smog, especially in regions like Los Angeles. That fuel is more expensive to produce, and because it’s not widely used elsewhere, California relies on a relatively isolated supply chain. When refineries go offline, prices can spike quickly because there are fewer alternatives.
That leads to another key issue: refining capacity and market dynamics. California has a limited number of refineries, and they operate in a tightly constrained system with little ability to import replacement fuel quickly. Studies have shown that this can add the famous “mystery surcharge,” sometimes 30 cents or more per gallon, linked to market concentration and supply constraints rather than explicit policy.
Finally, there are distribution and operating costs, which tend to be higher in California due to stricter environmental regulations, higher labor costs, and the general cost of doing business in the state.
Investments
What do Californians get in return? One of the clearest benefits is cleaner air. The state’s stricter fuel standards—along with vehicle emissions rules—have helped dramatically reduce smog-forming pollution over the past few decades. Regions like Los Angeles still struggle with air quality, but the number of high-smog days has dropped significantly compared to the 1970s and 1980s, when severe pollution was common. Cleaner-burning fuels reduce emissions of nitrogen oxides and other pollutants that contribute to ozone formation, improving public health outcomes, especially for children, seniors, and people with respiratory conditions.
Some benefits are tangible. Gas tax revenue helps fund road maintenance and local streets, while climate programs support transit, bike and pedestrian infrastructure, and cleaner transportation options.
Some benefits are broader and longer-term. Investments from cap-and-trade and LCFS are helping shift the state toward lower-emission transportation, which has implications for public health and climate change. And while California’s system isn’t perfect, it reflects a policy choice: to price some of the environmental and social costs of driving into the cost of fuel.
That doesn’t mean the system is beyond criticism. The complexity of these layers makes it hard for the public to understand where their money is going, and what causes the volatility of prices. Saying “let’s get rid of the gas tax” or “let’s have a gas tax holiday” will sound good to many people struggling to make ends meet, but there is little understanding what that will cost them in the short and long terms.
Because the price gap between California and other states isn’t just about taxes. It’s about a combination of policy decisions, market structure, and environmental goals that together make California’s fuel system different from the rest of the country.
Price Gouging?
Under Governor Gavin Newsom, much of the state’s efforts in previous years to address high gas prices have not focused on the state’s revenue, but on oil industry profits.
California has made some of the most aggressive efforts in the country to rein in what officials describe as excessive profits in the oil industry—particularly during price spikes. In 2023, lawmakers passed a first-in-the-nation law giving the state authority to cap refinery profit margins and penalize companies for price gouging, alongside creating a new watchdog within the California Energy Commission to monitor the petroleum market.
The push came after repeated periods where gas prices surged far above national averages during the pandemic era, with state leaders arguing that refiners were “raking in unprecedented profits” during tight supply conditions. The law was designed as a kind of backstop: when margins spike beyond a yet-to-be-defined threshold, regulators could step in, impose penalties, and potentially return money to consumers.
But in practice, those tools have yet to be used. Regulators have delayed implementing the profit cap rules for several years, citing concerns that aggressive limits could lead to refinery closures, reduced supply, and even higher prices.
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