Energy Blog: The High Cost of Gasoline in California

Photo Credit: Sosuke Tanaka

Global fuel prices have spiked since the start of the war in Iran and the ongoing closure of the Strait of Hormuz. As of May 13, the average cost of gasoline in the U.S. is $4.51 per gallon compared with $3.15 per gallon a year ago according to AAA. Drivers in California, the state with the highest fuel costs, are paying an average of $6.15 per gallon. Historically, California often has the most expensive gas with a difference consistently around $1 more than the national average.

Source: Energy Information Administration

The cost disparity between California and the rest of the U.S. can be attributed to several factors including higher state taxes and fees, stringent environmental rules, and challenging supply logistics.

California Price Breakdown                                             U.S. Price Breakdown

Sources: California Energy Commission; U.S. Energy Information Administration

As shown above, taxes and fees in California were about 90 cents per gallon compared with the national average of 51 cents at the start of the year. In addition to the federal excise tax of 18.4 cents per gallon, states set their own gas tax rates to fund transportation infrastructure maintenance. California levies a 61.2 cents per gallon excise tax which is adjusted annually for inflation.

The second major cost component is the state’s environmental regulations. Fuel suppliers must comply with California’s Cap and Trade program which requires them to purchase emission allowances for every ton of CO₂ their products generate. The Low Carbon Fuel Standard requires suppliers to also secure credits to offset the carbon intensity of conventional gasoline. These compliance costs are passed through to consumers at the pump, adding around 42 cents per gallon. In addition, the California Air Resources Board requires a special blend of gasoline designed to reduce smog but is more expensive to produce.

The last and perhaps recently most relevant factor to California’s high gas prices is the fact that it is a “fuel island” with no petroleum pipelines to bring fuel from out of state. Almost all gasoline is supplied from in-state refineries due to this supply chain constraint and the limited number of outside facilities that can produce California’s unique gasoline blend. In 2025, 81% of gasoline consumed in California was refined in state with the remainder being imported by marine vessels. At the beginning of 2026, California had eight refineries producing gasoline though Valero Energy notified the state of its intention to shut down their Benicia Refinery at the end of April. The facility was the second California refinery to close within a year after Phillips 66 ended operations at their Wilmington refinery in October 2025. Fuel prices are projected to increase as the two plants represented about 17% of California’s oil refining capacity.

Source: California Energy Commission

Another impact of California’s isolated petroleum market is the need to import much of its crude oil from overseas and Alaska (over 77% in 2025). With around 30% of oil imports coming from the Middle East, there are concerns that gasoline in California will continue to rise if the Strait of Hormuz remains closed.