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California says gas prices could spike 50 cents a gallon next year thanks to this climate program

A nearly two decades-old program to slash climate-warming emissions from transportation could cause California gasoline prices to spike as much as 50 cents a gallon in the next two years.

That’s according to staff of the state’s leading air quality regulator, who provided the estimate ahead of that agency’s decision to strengthen the program created to discourage gasoline and diesel production in favor of cleaner alternatives.

Their drastic projection comes amid growing concerns about fuel and energy costs related to California efforts to phase out fossil fuels. Already burdened drivers can expect to see gas prices hit $5 a gallon this spring, and electricity bills also are expected to rise.

“I was shocked to see it,” said Danny Cullenward, a climate economist and advisor to the state. “A 50-cent increase in the price of fuel is not a small thing.”

California Air Resources Board staff projected the price jump in a key report last fall, saying proposed reforms to the Low Carbon Fuel Standard (LCFS) would raise costs for the gasoline and diesel production companies that could get passed on to drivers.

In what they called an upper bound estimate, air board staff estimated that gasoline prices may jump by an average of $0.47 next year and $0.52 by 2026. They said diesel prices could increase by $0.59 this year and $0.66 in two years.

Over the long term, they found that gasoline prices could increase by $1.15 per gallon and diesel by $1.50 per gallon from 2031 to 2046. They also projected a $1.21 jump in jet fuel prices.

Air board staff have since downplayed their gas price hike projections, calling them “narrow and incomplete” in a December report. Instead, the agency has focused on cost savings to drivers across the economy as more people make the switch to EVs.

“CARB staff estimates the amount of money Californians spend on transportation costs across all vehicle classes could be up to 42% lower in 2045,” air board staff said this week in FAQs about the standard’s impact on fuel costs.

The LCFS was created in 2007 by then Gov. Arnold Schwarzenegger to reduce the state’s dependence on fossil fuels and encourage low-carbon alternatives. The first program of its kind, it has since been adopted by other governments, including the European Union.

It operates a system of monetary rewards and fees called “credits” and “deficits.” Producers of less carbon intensive fuel — such as biofuel, ethanol and biomethane — sell those credits to gasoline and diesel producers who rack up deficits.

Environmental advocates have long criticized the program as counterproductive, arguing that it neglects to invest in widely available zero-emissions transportation technology while supporting polluting industries such as industrial agriculture.

Now the California Air Resources Board is amending the program to align with its plan to reach carbon neutrality by 2045. The current proposal will increase stringency of carbon reduction targets to help replace fossil fuels with lower-carbon fuels more quickly.

That tightening of the targets means gasoline and diesel producers will have to buy more credits, costs that air board staff said will ultimately be passed on to consumers of their product.

Daniel Sperling, director of the Institute for Transportation Studies at UC Davis whose research significantly influenced the original LCFS, said the air board’s gas price calculations assumed credit prices would reach their highest peak right away, which is unlikely.

“Essentially, it’s a worst case scenario,” Sperling said, who added that rising gasoline prices should be offset with assistance for low-income communities. “They’re making various extreme assumptions. The price impacts have been pretty modest for quite a few years.”

Environmental justice advocates are quick to point out that these gas price increases will be felt most acutely by Californians who can least afford them. Low-income households already spend a far higher proportion of their income on fuel costs, and switching to an EV remains financially out of reach for many.

“These LCFS amendments will increase transportation costs for lower income people and people of color,” said Phoebe Seaton, co-founder of the Leadership Counsel for Justice and Accountability.

Her organization has long pushed for amendments to the LCFS biomethane credits, which she argues has exacerbated environmental harm for communities in the San Joaquin Valley.

She suggested that “the program could achieve its goals while reducing cost impacts to lower income people by eliminating excessive and misaligned credit generation for biogas and biofuels.”

Jeremy Martin, senior scientist and director of fuels policy for the Union of Concerned Scientists, also recommended that air board restrict the supply of credits to cut company compliance costs and lower price increases. But ultimately, he said, gas car drivers will face rising prices and policy makers should pay attention.

“There’s a lot of benefits to this, right? Public health, air quality. Using electricity instead of oil also has economic benefits, because it’s more stable and less expensive,” Martin said. “But just because it’s something worth doing doesn’t mean we should ignore the costs.”

CARB indefinitely postponed a March vote on the proposal and plans to host a workshop in mid-April to discuss possible amendments.