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Below are the monthly updates from the most current June 2022 fuel price data (GasBuddy.com) and April 2022 electricity and natural gas price data (US Energy Information Administration (IEA)). Our report this month was delayed as IEA spent last week restoring the data to its site. To view additional data and analysis related to the California economy visit our website at www.centerforjobs.org/ca.
Gasoline prices continued their rise in June, with the difference between California prices and the rest of the states essentially remaining level at $1.54 higher a gallon. Diesel prices rose faster, accelerating their effect as the primary transportation fuel into rising costs for food and other goods, and increasing the cost and challenges of resolving persistent supply chain blockages.
In the latest results from California State Automobile Association, prices have since moderated somewhat as world oil prices have eased. California average price for regular was $6.088 on Tuesday, down 5.3% from a month ago. Nationally the average was $4.678, down 6.5%. The California price incorporates the increase in state fuel taxes at just under another 3 cents a gallon for gasoline and just over another 2 cents for diesel as of July 1.
As discussed in previous reports, the recent surge in energy prices has brought home their core role in the overall cost of living and the current inflationary environment. Following competing proposals from the governor and legislature, the recently signed iteration of the budget allocates $17 billion of the current surplus to various relief measures, including up to $1,050 tax refund per household and one-time or limited term increases in various benefit programs.
Higher energy costs, however, are not new to California. They only have become more apparent as the result of increasing national attention sparked by the current turmoil in global energy supplies. Californians instead have faced a constant cost rise as the result of deliberate state policies, and these costs have been rising at the scale now seen nationally over a much longer period of time.
Looking at electricity, natural gas, and gasoline costs—and not including diesel—these state policies have forced Californians to pay an additional $23.6 billion annually for electricity when compared to average paid in the other states (using EIA data as shown below), $4.0 billion annually for natural gas (using EIA data as shown below), and an additional estimated $18.8 billion annually in higher gasoline costs compared to the average in the other states (using Franchise Tax Board sales data and GasBuddy price data as shown below). Combined, these higher costs from state policies are currently running at a $46.4 billion annual rate, or 2.7 times the $17 billion in relief contained in the budget.
More critically, the $17 billion relief is a one-time event made possible only by the current and now likely temporary budget surplus. The $46.4 billion in added energy costs from state policies is an ongoing charge faced by households, businesses, and local governments each year, and the overall amount is rising. As usual, however, the relief contained in the budget is temporary and partial. Once those payments are quickly exhausted, the sustained rise in energy costs will continue unabated in the absence of real changes that get at the root causes of skyrocketing costs of living and costs of doing business in California.
In most instances, California not only faces higher energy prices but also substantially higher volatility in those costs due to the nature of the state policies and regulations walling off California from national and global markets. High fluctuations in gasoline prices are the result of state regulations that limit the types of gasoline that can be sold in the state, largely only what is produced here. When spot shortages occur, especially around the mandated biannual changes in required formulations, California prices can and have reacted accordingly to shortages created by regulation and often shortages in an otherwise sea of plenty put out of reach by those regulations.
This same regulatory model that has worked so greatly to the detriment of California households and businesses is now being extended by the agencies to other energy markets as well. As detailed in our quarterly reports on zero emission vehicles, currently proposed state regulations would shift from energy sources in which the US is now largely self-sufficient—including both traditional and emerging alternative fuels—to reliance on a few, highly concentrated sources of battery-critical materials. The state’s experience with fuels to date illustrates the supply and price risks that come from such restrictions on allowable energy sources.
The proposed rules for vehicles threaten to heighten these risks, by restrictions on the sources themselves and by shifting reliance from broad-based domestic production to reliance on a few, concentrated foreign sources for the critical minerals and more importantly for processing of the ores. As stated by President Biden, “China controls most of the global market of these minerals, and the fact is that we can’t build a future that’s made in America if we ourselves are dependent on China for the materials, the power, the products.” The US response to date has not been to meet this challenge, but instead cancel or delay mining projects that could help to turn this situation around.
A just-released IEA report indicates this concentration risk extends to the state’s chosen path for electricity as well. The report details how the global solar manufacturing industry has moved from the US, Europe, and Japan to China, creating 300,000 jobs there in the process across the entire solar value chain. China’s share of the solar industry now exceeds 80% across all manufacturing stages, including polysilicon, ingots, wafers, cells, and modules. And having succeeded in securing the solar value chain, China is now targeting wind as well.
The recent pandemic period supply disruptions more than illustrated the economic risks of becoming overly reliant on single sources for core materials, parts, and goods. The current energy regulations are moving forward as if those lessons do not matter and that somehow the desired outcomes will result if only the right assumptions are made.
Actions on climate change are often couched in terms of needing to tackle an existential threat. But the response in the US and more pointedly in California has been to act on this basis only when proposing yet another round of regulations. Never to apply the same urgency to developing the minerals, processing, and manufacturing capacity in order to put those regulations into effect. As a result, California and California jobs where those capacity decisions take years to make if at all continue to lose out to competing regions and countries where final approvals can be given in a matter of weeks and months. California continues its claims of being where the future is made, but the current regulatory path the state has chosen only guarantees that the core building blocks and energy for that future will be produced elsewhere.
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