Thursday, 11 June 2015

How much has Cap and Trade Increased the Price of Gas in California?

My parents are visiting from Ohio, and a favorite topic of conversation on these visits is what is more expensive here than “back home” and how much.

While driving past a gas station with my Dad this weekend he suddenly whistled, “Whoa, it’s $2.59 at home, that’s the biggest difference I have ever seen.  What’s going on?"  I mentioned that we now have AB 32 (cap and trade) covering motor fuels, and that the most quoted studies predicted about a 10 cent increase per gallon, but I haven’t studied it in detail.

That conversation led me to conduct some in depth research on Gas Buddy, which generated the following chart comparing California and Ohio.


I looked going back 8 years, and it looks like the historical difference is 25-50 cents per gallon with the gap being larger in the summer.  So far in 2015, it looks the difference has been 50 cents to a dollar with the current difference being about 75 cents a gallon.  Dad was right.

The data is volatile and it is a little premature to draw conclusions, but it looks to me like the AB 32 effect is about 25 cents per gallon.

I seem to recall predictions that a price of about $10 per ton for carbon emission permits would translate into about 10 cents per gallon.  So far in 2015, the carbon price has been $12-13 per ton, so the gas price increase/gap seems higher than expected.  I wonder how the cap and trade revenue being collected by the state compares to the increased amount California drivers are paying for gas.

I am sure there are many people who are properly researching this issue, and we will be hearing a lot about it in the months and years to come.

About the Author

Ethan Jacob

Author & Editor

I am Ethan Jacob Executive Director of the Center for Business and Policy Research at the University of the Pacific, where I have a joint faculty appointment in the Eberhardt School of Business and the Public Policy Program in the McGeorge School of Law..

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