Gas price conundrum


Foon Rhee’s recent editorial about California’s premium gas prices points to a true conundrum. High  prices are bad for the wallet but good for the environment.

Cal Gas price gapIn May Californians paid the highest premium for gasoline compared to the rest of the nation since the turn of the century –$1.03– that may have cost Californians an additional $1 billion at the pump.   But that premium has had long-standing benefits for the environment: greater fuel and energy efficiency. Relative to its economic heft, California has long left a smaller environmental footprint than most other states.  This is the result of factors including dense population clusters (less long distance rural driving), a moderate climate (lower demand for winter heating fuels), fierce regulators, and HIGH PRICES.

Arguably, that last item, in concert  with the regulatory environment, is the most effective driver of energy efficiency .  It’s a constant motivation that steers most people to make every day decisions in the name of their pocketbooks, such as preferring shorter commutes and more fuel-efficient cars.  Given these efficiencies, the total aggregate financial hit to the state economy is not as big as it would be otherwise or in other states.

According to Gordon Schremp of the California Energy Commission, the “blame” for the current spike in the gas premium was laid on several factors according to Gordon Schremp of the California Energy Commission:

  • California is an isolated gasoline market.  Pipes ship gas out, not in.  This means that gas can’t be easily imported to compensate for unexpected shortages.  Imported gas accounts for only 3-5 percent of gas supply.
  • Higher taxes including the application of  the state’s cap-and-trade system
  • Higher production costs for the transition from winter to summer gasoline mixes.

The good news from these high prices is that Californians will continue see value in fuel efficiency which should pay substantial, but generally unappreciated, environmental benefits.  In this case, what’s bad for budget is good for the soul.

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