We’re used to high gas prices in our home state of California. After all, we’ve consistently paid some of the nation’s highest gasoline and diesel prices for years. But why is fuel so expensive in California? The biggest reason is the fuel taxes we pay. California has the highest state gas tax, which currently hovers at 51.1 c/gal. This tax is on top of the federal gas tax of 18.4c/gal and additional local fuel taxes at the city level. How did California’s tax rise so fast? Let’s break it down with a quick history of the fuel tax in California.

History of California’s Fuel Tax
California’s fuel tax has had a surprising history of highs and lows, but in the last few years, it has risen considerably to be the highest in the nation. Below is a quick overview of how the fuel tax has progressed from California Road Charge.

  • In 1923, the first state gas tax was approved at 2c/gal.
  • In 1934, the first federal gas tax was approved at 1c/gal.
  • Between 1940 and 1957, the federal gas tax rate rises in response to World War II and the Korean War. California also raises state gas taxes.
  • In 1956, the Federal Aid Highway Act was passed, which allocated funding for transportation. It remains the bedrock of transportation funding today.
  • Between 1980 and 1990, the federal and California gas taxes rose by 14c/gal each.
  • In 1993, the federal gas tax rate rose to the current standard of 18.4 c/gal. California followed suit by raising its state rate to 18 c/gal in 1994.
  • In 2017, the Road Repair and Accountability Act was passed in California. It was designed to safeguard road transportation maintenance funding, including a further 12c/gal fuel tax raise and future cost of living increases. A $100 registration fee for zero-emission vehicles is also introduced for the first time.

As you can see from this timeline, California’s fuel tax used to rise in conjunction with the federal fuel tax. But since the mid-2000s, the fuel tax has significantly increased, while the federal fuel tax has remained the same.

Why is California’s tax so high?
There are a lot of factors that lead to the high fuel prices and taxes that Californians pay. A few of them include:

  • Population: California is the most populous state, with 39.24 million people as of 2021. This leads to increased competition for fuel resources and drives prices up.
  • No interstate pipelines: California is a ‘gas island’ according to theLA Times. It has no pipelines between states, so the fuel industry relies on in-state refineries and imports. Additionally, more refineries have been shutting down in recent years, with only ten operating now, compared to the previous 50. This refinery issue also leads to occasional spikes in fuel prices when supply chain issues like maintenance or refinery shutdowns reduce output.
  • Special gasoline blends: In California, refineries must also produce a special blend during summer to reduce air pollution. Typically, the summer blend pushes prices up during the summer months.
  • Environmental policies: One of the most significant factors driving fuel tax and gasoline prices up in California is environmental laws and policies to reduce air pollution and the use of fossil fuels. For example, California is the seventh largest oil producer in the US, but the state is imposing more restrictions on oil production. For example, new oil and gas drilling projects in Los Angeles are banned within the city limits, and existing operations are being phased out.

What is the California gas tax used for?
The revenue collected from the California gas tax is earmarked for road maintenance and transportation costs. It’s designed to keep roads in good shape and fund new transportation projects. The high population and roadway use in California mean that this tax is important for the future of transportation in the state. However, a new mandate to increase zero-emissions vehicles may affect this funding.

California’s zero emissions ban affects state transportation funding
In 2022, a new mandate limiting the sale of gasoline-powered vehicles starting in 2035 in California was passed. The Air Resources Board approved this move as a significant effort to reduce greenhouse gas emissions, improve air quality, and drive the adoption of EV vehicles. The ban will proceed in stages, beginning with:

  • 35% of all 2026 vehicle models sold in California must be zero-emissions
  • 68% of all 2030 vehicle models sold in California must be zero-emissions
  • 100% of all 2035 vehicle models sold in California must be zero emissions

In a recent state analysis report from December 2023, some troubling news came to light. The state fuel tax could take a hit as California pushes for reduced greenhouse gas emissions. The report found that the funding from the gas tax may drop by as much as 6 billion dollars in the next decade.

Where will transportation funding come from with fewer gasoline-powered vehicles on the road?
A significant drop in transportation funding is not good for California’s roads or transportation sector. So, what is being done to offset the potential drop that may come as the zero-emission mandate moves into place? Government officials and transportation industry professionals are trying to determine the best funding method. One option already in place is the state road improvement fee, which electric car drivers must pay when registering their cars.

Is a mileage-based user fee the answer?
The average Californian currently pays $280/year in state gas taxes driving a gasoline-powered vehicle. Electric vehicle owners pay a $100 road improvement fee when registering cars. Additionally, trucks and larger carriers pay weight charges, too. All of these charges go towards road maintenance and transportation funding.

But as the adoption of EV vehicles becomes more widespread, this funding will drop. So, one idea that is being floated around is to institute a mileage-based user fee instead of a fuel tax. This fee would be based on how many miles people drive and the kind of vehicle they own. This idea is still very new, but it could be a different way to fund transportation costs. To learn more about this idea or to try out their Road Charge calculator to see how much you might pay, visit California Road Charge!

We’re here for you wherever fuel taxes go!
The future of California’s transportation funding and fuel taxes is still up in the air. It will be interesting to see how the coming changes affect the transportation industry. As a fuel and lubricant supplier, we’ll keep an eye on things and update you as we learn more. California is our home state, and we’re invested in seeing how the transportation industry changes here for our customers and fellow community members! For fleet fueling questions, contact Greg’s Petroleum Service today!