SALEM, Ore. — California Governor Gavin Newsom recently called for the state’s energy commission to investigate the cause of California’s relatively high gas prices. At the time of Newsom’s request on April 23, California drivers were paying an average of $4.03 per gallon according to AAA, or $1.18 more than the national average.
“Independent analysis suggests that an unaccounted-for price differential exists in California’s gas prices and that this price differential may stem in part from inappropriate industry practices,” Newsom wrote in his April letter to the commission. “These are all important reasons for the Commission to help shed light on what’s going on in our gasoline market.”
Given that Democratic lawmakers who control the California Legislature recently voted to raise gas prices by hiking the state gas tax in 2017, a move that Newsom supported at the time as Lieutenant Governor, Newsom and Democratic lawmakers’ investigation into the source of high gas prices has been mocked.
The gas tax hike signed into law less than two years ago by then-Governor Jerry Brown (D) isn’t the only policy put into place by California progressives that is driving up prices at the pump. The state’s cap and trade program for carbon emissions, launched in 2013, also increases energy costs in California relative to other states.
California’s cap-and-trade system for carbon emissions, together with its low-carbon fuel standard, increase Golden State gas prices by $0.24 per gallon beyond the national average, that’s according to a 2017 state government report.
Energy industry representatives contend that market forces can explain gas price differentials between California and other states.
“The petroleum industry on the West Coast has been subject to dozens of independent investigations by government agencies, all of which concluded the dynamics of supply and demand are responsible for movements in the price of gasoline and diesel fuel,” said Kevin Slagle, a spokesperson for the Western States Petroleum Association, adding that “state programs, such as cap-and-trade and the Low Carbon Fuel Standard, impact fluctuations in energy markets.”
Massachusetts Leads Regional Initiative That Could Inflate Gas Prices Across New England
New tax and regulatory schemes that drive up the cost of energy are not unique to California or other west coast states. Massachusetts Governor Charlie Baker (R) is also pursuing a regional regulatory regime, referred to as the Transportation Climate Initiative (TCI), that will also apply upward pressure to fuel prices in northeastern and mid-Atlantic states that are party to the agreement.
The Transportation Climate Initiative, announced in December of 2018, “is a regional collaboration of 12 Northeast and Mid-Atlantic states and the District of Columbia that seeks to improve transportation, develop the clean energy economy and reduce carbon emissions from the transportation sector,” explains the official TCI website.
States participating in TCI include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Virginia. According to the TCI website, participating states are “now working together to explore potential regional policies to improve transportation systems and reduce pollution.”
What those policies will be remains to be seen, but it is reported that TCI policy proposals will be released toward the end of 2019. The December 2018 statement announcing the launch of TCI stated the initiative’s goal is to “design a regional low-carbon transportation policy proposal that would cap and reduce carbon emissions from the combustion of transportation fuels through a cap-and-invest program or other pricing mechanism… [and]… to complete the policy development process within one year, after which each jurisdiction will decide whether to adopt and implement the policy.”
It is expected that those policies, whether they are a carbon tax on fuels or a cap & trade scheme, will inflate the cost of gasoline in states that implement it. These higher gas prices translate into a regressive tax hike that will disproportionately harm low-income households struggling to make ends meet in some of the most expensive parts of the country in which to live.
Next Cap & Trade Scheme Most Likely To Arrive In Oregon
While lawmakers, bureaucrats, and various special interests work to craft policy proposals aimed at reducing transportation emissions in northeastern and mid-Atlantic states, Oregon provides the more immediate threat (or opportunity, depending on how you look at it) for the implementation of a new cap and trade regime.
Earlier this week Democratic lawmakers who run the Oregon Legislature passed a new tax on business gross receipts. That new tax will hit businesses that fail to turn a profit and the non-partisan Legislative Revenue Office found it will reduce long-term earnings for low-income workers. That may not be the last of the tax or rate hikes enacted in Oregon this year.
Oregon Democrats are also considering legislation (House Bill 3425) that would impose a state cap and trade system similar to what is found in California. As with California’s cap and trade regime, the proposal pending in Oregon would drive up prices at the pump and hike utility bills.
Like a carbon tax, the cap and trade system proposed for Oregon would act effectively as a regressive tax hike that does disproportionate harm to low-income households. Even cap and trade proponents acknowledge this and have proposed ideas for mitigating the problems that cap and trade will create for low income households. .
“The Department of Environmental Quality estimated that if cap and trade went into effect in 2021, there would be an immediate 15- to 16-cents per-gallon increase,” reports Oregon Capital Bureau’s Aubrey Wieber. That’s because fuel companies will have to buy allowances to offset trucking gas and diesel around the state.”
Northwest Natural, Oregon’s largest natural gas utility, projects enactment of the cap and trade bill will cause an 11% increase in natural gas prices for residential customers in the program’s first year, and a 53% price increase by 2040.
As with the gross receipts tax approved by the Oregon Legislature earlier in the week, imposition of a cap and trade regulatory scheme will make the state a more costly place to do business and a less attractive destination for job-creating investment. The coming weeks in the Oregon capitol will determine whether that state becomes the second in the nation to impose a cap and trade system that will inflate energy costs.
While gridlock remains the name of the game in Washington this year, the states continue to provide plenty of legislative action, with significant reforms being enacted regularly.