California's Gasoline Crisis - $10 Gas - Is It Coming?
- Rex Ballard
- Dec 8, 2025
- 5 min read
California's gasoline prices remain the highest in the continental United States by a wide margin, routinely $1.50–$2.00 above the national average despite a sharp nationwide decline driven by record domestic production. As of December 8, 2025, the statewide average for regular gasoline stands at $4.469 per gallon (AAA data), with some regions exceeding $5.00. The national average has fallen below $3.00 for the first time since 2021, highlighting California's isolated and self-inflicted premium. This gap is not primarily a function of crude oil costs—which comprise 50–60% of pump prices and have been suppressed by federal energy dominance policies—but stems from a layered accumulation of state taxes, fees, and regulatory compliance costs that no other state imposes at comparable scale.
The Policy Foundations of California's Gasoline Premium
California's price structure is adversely impacted by four key regulatory driven policies. It begins with the nation's highest excise taxes and fees, but is further amplified by three cornerstone climate related programs—Cap-and-Trade, Low Carbon Fuel Standard (LCFS) and California Reformatted Gasoline. All these programs are designed to protect the environment but each functions as hidden, variable taxes on fossil fuels. These programs are administered by the California Air Resources Board (CARB). Cap-and-Trade and LCFS were designed explicitly to raise the cost of gasoline and diesel to discourage consumption, steer consumers toward electric vehicles and generate revenue for green initiatives.
Taxes and Fees California's state-level excise tax is 61.2 cents per gallon (effective July 2025), supplemented by sales taxes (state base 7.25% plus local add-ons averaging 1–3%, for an effective ~8.5–10.5%), underground storage tank fees, and other levies. Using standardized methodology from the Tax Foundation, the total state-imposed burden equates to approximately 70.9 cents per gallon—roughly 50–100% higher than the average for the other 49 states (~38–48 cents per gallon, including sales-tax equivalents in the minority of states that apply them).
Cap-and-Trade ("Cap-and-Invest") Extended through 2045 in September 2025, this program requires refiners and importers to buy carbon allowances for every gallon supplied. Allowance prices in 2025 have averaged $35–$50 per ton, adding 25–40 cents per gallon at the pump. The program is explicitly designed to raise fossil-fuel costs and redirect billions annually to climate projects.
Low Carbon Fuel Standard (LCFS) The July 2025 amendments dramatically tightened carbon-intensity benchmarks and introduced an automatic accelerator. Credit prices averaged $57–$70 in late 2025 (after peaking near $80 earlier in the year), adding an estimated 40–80 cents per gallon — the single largest regulatory contributor to California's premium. Compliance costs are fully passed to consumers via a credit/deficit trading system that functions as a hidden, variable carbon tax on gasoline and diesel.
California Reformulated Gasoline (CaRFG3) The state's unique "cleaner-burning" blend adds a further 10–25 cents per gallon in production costs and creates an isolated market vulnerable to supply disruptions.
Combined, these policies impose a structural premium of $1.50–$2.50 per gallon above what Californians would pay under a national standard regulatory framework.
Making Matters Worse - The Collapse of Refining Capacity
California has lost ~35% of its refining capacity since the early 2000s, with the pace off decline accelerating sharply in the 2020s. As of late 2025:
Phillips 66's Wilmington/Los Angeles refinery (138,000–147,000 b/d) began winding down in September 2025 and is ceasing gasoline production by December 2025/Q4.
Valero's Benicia refinery (planned closure April 2026).
These two closures alone eliminate 17–18% of remaining gasoline production capacity. No new refineries have been built since the 1970s, and none ever will under current policy due to CEQA litigation, local bans, and explicit state discouragement of fossil fuel infrastructure. The regulatory environment makes it virtually impossible to obtain permits for new construction.
Federal-Level Efforts to Mitigate the Crisis
Federal actions under the Trump administration—record crude production, eased CAFE standards, and most critically the 2025 revocation of California's Clean Air Act waivers for EV mandates—have driven national prices below $3.00 and removed the primary policy justification refiners cited for exiting gasoline production. These measures stabilize long-term gasoline demand and exert downward pressure on crude costs, providing partial relief to California.
Forecast for California Gasoline Prices: 2026–2030 Scenarios
If current state trends continue un-reversed—escalating LCFS/Cap-and-Trade costs, no new supply infrastructure, and further refinery attrition as remaining facilities (e.g., Chevron's) face the same demand-destruction signals—gasoline prices will shift to a permanently higher plateau with extreme volatility:
Outlook
2026: Full impact of the Phillips 66 and Valero closures hits by mid-year. Independent analyses (UC Davis, USC, Stillwater Associates, Consumer Watchdog) converge on an additional $1.20–$2.00 per gallon structural increase during normal conditions, pushing averages to $5.70–$7.50, with summer/outage spikes routinely exceeding $8–$10. Some scenarios (e.g., USC May 2025 study) forecast peaks up to $8.44 by late 2026 if import logistics falter.
2027–2030: With refining capacity potentially declining another 20–30% and LCFS/Cap-and-Trade costs rising (credit prices projected $80–$150+ per ton under tighter benchmarks), average prices settle in the $6.50–$9.00 range absent disruptions, with chronic shortages possible. Routine outages could push prices above $10–$12 in affected regions. (USC May 2025 Study) The state will increasingly rely on expensive imported finished gasoline from Asia or the Gulf Coast, adding freight premiums and exposure to global events.
Broader impacts include tens of billions in annual economic drag all caused by higher gasoline prices. Transportation costs rise which in turn impacts the costs of goods. These impacts are regressive in nature causing disproportionate harm to low- and middle-income households (who spend 5–10× more of their income on fuel and impacted goods).
Federal efforts will offer some mitigation: lower crude costs have already shaved ~50–80 cents off the baseline in 2025. EPA regulation waivers and revocations could encourage some refiners to delay exits or invest marginally, potentially capping the closure-driven spike at $0.80–$1.50 instead of $2.00+. However, without state-level reforms (e.g., LCFS rollback, tax relief, or boutique-blend waivers), California's regulatory adders will keep gas in the state at a minimum of ~$2.00–$3.00 above national averages indefinitely.
California's gasoline crisis is a policy choice, not a market inevitability. The state has engineered scarcity and cost escalation in pursuit of climate goals. Some argue that these goals deliver symbolic rather than substantive global benefits. Residents now face a future of pain at the pump, with low and middle income earners shouldering the brunt of the burden -- unless Sacramento reverses course.
References & Sources
AAA Fuel Prices – California & National Averages, December 8, 2025
Tax Foundation – State Gasoline Tax Rates, July 2025
California Air Resources Board – Cap-and-Trade Auction Results & Program Updates, 2025
California Air Resources Board – LCFS Credit Trading Activity Reports, 2025
Stillwater Associates – California Refining Capacity & Price Impact Analyses, 2025
USC Schwarzenegger Institute / Michael Mische – Gasoline Price Forecast Study, May 2025
Phillips 66 & Valero Energy – Refinery Closure Announcements, 2024–2025
U.S. Energy Information Administration (EIA) – Refinery Capacity Reports, 2025
Consumer Watchdog – Mystery Gas Price Spike Reports, 2025
Congressional Review Act resolutions & Executive Actions revoking California CAA waivers, May–June 2025
