So-Called "Price Gouging Bans" Won't Help California Gas Prices

Although gasoline prices nationally have dropped after a year of out-of-control inflation, California’s gas prices remain sky-high. In an attempt to place blame on a bogeyman, Governor Gavin Newsom recently called an extraordinary session for SBX1-2, which would use the heavy hand of government to limit profits and “price-gouging” of oil refineries.

Specifically, this bill seeks to set a maximum margin for gasoline refining and for the State Energy Resources Conservation and Development Commission to establish a penalty for any California-based refineries that exceed that maximum. Any levied fines would be deposited into the new “Price Gouging Penalty Fund.” The use of these funds is so far unclear. The bill simply gives the authority to the Legislature to determine how to use the funds “to address any consequences of price gouging on Californians.” The Commission would be required to create a process to consider requests for exemptions, although that process and whether any approvals would be granted remains to be seen.

California’s wildly expensive gas prices are indeed a problem. As of March 23, the average price for a gallon of regular gasoline was $4.82, well above the national average of $3.43, according to AAA. So, it makes sense that the governor would seek policy solutions to defray costs for consumers. 

However, SBX1-2 is a lackluster attempt at reducing costs for taxpayers and will have devastating consequences for California’s energy market, ultimately leading to even less gasoline availability and higher prices. This bill would lead to a decreased energy supply, higher costs for refiners, increased prices for consumers, and potentially losing jobs for Californians. (It's simple supply and demand that most high school seniors learn in 12th-grade economics. Increased costs on production will lead to lower supply. Lower supply with steady or rising demand raises the price of a good or service.)

Unfortunately, SBX1-2 has already passed the California State Senate and now moves to the State Assembly. The governor could sign this new policy as early as next week, leaving consumers to pay the price for the new law at the pump.

We would encourage California legislators and the governor to instead look at the root causes of why their gas prices are so high, including policies state lawmakers control, such as the gas tax and regulatory environment for oil. 

Professor Severin Borenstein at the University of California Berkeley’s Haas School of Business has estimated California-specific regulations and taxes to cost the state a total of $1.09 per gallon of gas. This adds up to 80 cents higher than the average gas tax in other states, a good starting point for policymakers to address.

Scaling back unnecessary regulations that raise costs for consumers and small businesses is the smart move for lawmakers who want long-term effects for their constituents and taxpayers back home because these taxes and feeds do add up for Californians — who are still, by and large, driving cars. The Federal Highway Administration shows the number of licensed drivers in California has increased by nearly 14 percent from 2010 to 2020. 

By getting the government out of the way, Californians would also see a rise in competition throughout the supply chain, increasing supply and decreasing costs. With lower taxes, less red tape, and more options, free-market competition would help address the inefficiencies that have produced the vast disparity between gas prices in California and other states.