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California bumps up gasoline tax, challenges await

6 Nov 2017, 6.56 pm GMT

California bumps up gasoline tax, challenges await

San Francisco, 2 November (Argus) — The first increase in California's motor fuel taxes in more than two decades could help the state make additional reductions in greenhouse gas (GHG) emissions, if the tax hike survives a forthcoming repeal effort.

The increase in gasoline and diesel excise taxes as well as higher vehicle registration fees were mandated by SB 1, a bill lawmakers passed in April to raise $52.4bn over 10 years for transportation infrastructure.

The state raised the excise taxes on gasoline by 12¢/USG to 41.7¢ and diesel by 20¢/USG to 36¢. The higher taxes took effect yesterday.

While the primary targets for the funding include the state's roads and bridges, initiatives that reduce GHG emissions and contribute to the state's climate goals stand to benefit as well.

SB 1 "incorporates a broad goal to advance the state's greenhouse gas reduction and other important environmental objectives by focusing on ‘fix-it-first' projects and investments in public transit and active transportation," state senator and bill author Jim Beall (D) said.

More than $1bn/y will go to projects that cut travel times and get people out of their cars, Beall said.

Revenues from a 4pc increase in diesel sales taxes will be funneled to state transit agencies to improve rail and bus lines and reduce the number of miles driven by cars and trucks. Lawmakers also want highway expansion projects to designate any additional capacity as high-occupancy vehicle lanes, in an effort to encourage carpooling and cut down on congestion and associated GHGs.

The new taxes could also provide an indirect benefit to GHG-reduction efforts by reducing competition for money generated by California's cap-and-trade program. Some lawmakers had suggested the state did not need the new fuel taxes and could instead rely upon carbon allowance auction revenues for needed repairs.

The taxes themselves could lead to shifts in consumer behavior that could reduce emissions by boosting what are already among the nation's highest fuel prices. As of 30 October, Californians were paying an average of $3.07/USG for gasoline, according to the US Energy Information Administration.

Higher prices at the pump create an incentive for drivers to seek out alternatives. State officials hope consumers will find electric vehicles increasingly attractive, particularly as automakers start to produce more models that carry lower prices tags.

California has set a goal of 1.5mn zero emission vehicles on the road by 2025 and is 20pc of the way to that target as of midway through this year. Lawmakers are betting that a $100/yr fee included in the transportation bill will do little to blunt the enthusiasm for such vehicles once it takes effect in 2020.

Advocates say the increased gas tax may help the market for electric vehicles on the margin but that other factors, such as superior driving performance, less maintenance and fewer emissions will prove more important.

"Electric vehicles in the long-run, I think, will succeed because it is a better technology," executive director for the non-profit advocacy group Plug In America Joel Levin said.

But while some drivers may switch from a car with an internal combustion engine to a Chevy Bolt or Tesla Model 3, most will be stuck paying higher prices at the pump. And they may be angry about it.

California Republicans plan to make the gas tax a central issue in the 2018 campaign. "California should be using existing revenue for road repair and maintenance, rather than asking taxpayers to bail them out," assembly member and gubernatorial candidate Travis Allen (R) said.

Allen is hoping to collect the more than 585,000 signatures needed to put the question of repealing the gas tax before voters next year. The measure likely would have to compete for voters' attention with at least one other similar ballot initiative.

"Sacramento politicians really crossed the line with these massive car and gas tax hikes, and we intend to give taxpayers the chance to reverse that decision with this initiative," said Carl DeMaio, chairman of the political action committee Reform California, which wants voters to repeal the taxes.

Motorists may not immediately notice the 12¢ increase at gas stations, in part because many fuel retailers switch over to the cheaper winter blend of gas around this time of year. But the tax will eventually push prices higher in a state that already has multiple policies that affect fuel costs.

Both California's cap-and-trade program and Low-Carbon Fuel Standard (LCFS) add to the operational costs for refiners and fuel importers, costs that subsequently are passed down to the consumer. Argus assessments indicate that cap-and-trade adds roughly 12¢/USG to the cost of summer blend Carbob at current carbon allowances prices, while the LCFS tacks on an additional 5¢/USG with credits hovering around $100/metric tonne.

Before California dedicates billions of dollars to filling in potholes and repairing worn bridges, the tax must survive.


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