Study Debunks Price Gouging Myth Behind California’s High Gas Prices

If you’ve filled your tank in California lately, you’ve felt the sting—gas prices there aren’t just high, they’re consistently the highest in the nation. As of April 14, 2025, the average price of a gallon of regular unleaded in California was $4.67—more than 55% above the national average.

In some counties, including Mono and Alpine, prices exceed $5.80 a gallon. That’s nearly 90% more than what drivers are paying in states like Texas or Mississippi. These aren’t short-term spikes—they’re a chronic condition. And contrary to popular opinion, it’s not corporate greed or price gouging to blame.

A recent report, A Study of California Gasoline Prices by Professor Michael Mische at the Marshall School of Business, University of Southern California, lays out a clear and compelling case for why California’s fuel costs are so high—and why they’re likely to remain that way. The reasons are largely structural, policy-driven, and deeply embedded in how the state regulates, produces, and distributes gasoline.

Professor Mische notes in his disclaimer that he “has not received any special compensation and has no promise or anticipation of any future compensation for the work presented herein. This work and the author are entirely independent and not affiliated with, in any form, and are not advocating on behalf of or representing any petroleum company, organization, or foreign entity.”

I’ve covered some of these dynamics before in California Gas Prices: The State Makes More Money Than Refiners, but Professor Mische’s report offers a much deeper dive. Below are his major findings.

A Perfect Storm of Policy, Regulation, and Infrastructure

According to the study, there are seven core drivers behind California’s persistently high gas prices. None of them are accidental, and none are easily fixed.

1. Environmental Regulations

California mandates a specialized gasoline blend known as CARBOB (California Reformulated Gasoline Blendstock for Oxygenate Blending), along with seasonal reformulations and a stringent Cap-and-Trade program. These collectively add $0.47 to $1.15 per gallon in compliance costs—costs not borne by drivers in other states.

2. High Taxes and Fees

California levies the highest gasoline taxes and regulatory fees in the nation—around $1.64 per gallon. By comparison, refiners typically make far less per gallon, often just pennies. When drivers look at the pump price, they often miss how much of it is policy-driven rather than market-driven.

3. Declining In-State Oil Production

Once a top oil-producing state, California now supplies only about 23% of its own crude needs. More than 60% of its crude is imported—much of it from politically unstable or distant countries. That reliance adds transportation costs and makes the state vulnerable to global price swings.

4. Refinery Closures

California has lost significant refining capacity over the past decade, with more to come. Phillips 66 and other operators are shuttering refineries, with California expected to lose another 8.6% of its capacity—tightening supply even further.

5. No Inbound Pipelines

Unlike Texas or Louisiana, California has no crude oil pipelines crossing its borders. That forces the state to rely almost entirely on marine shipments and a limited number of rail routes—both of which are more expensive and subject to disruption.

6. Business Climate

The state’s regulatory and political environment is viewed as unfriendly to the oil and gas industry. Since 2018, more than 360 energy-related companies have left California altogether. That includes major oil producers, pipeline operators, and support services—many of which have cited excessive red tape and regulatory hostility as key reasons for exiting.

7. California’s Long-Term Policy Goals

Finally, the state’s aggressive push to ban the sale of internal combustion engine vehicles by 2035 creates a chilling effect on long-term investment in fuel infrastructure. Why would companies invest billions in refining, storage, and distribution assets in a state that has openly stated its goal of making those assets obsolete?

The Ripple Effect Beyond California

This isn’t just a California problem. Neighboring states like Nevada and Arizona are highly dependent on California’s refineries—88% and 48%, respectively. So, when prices rise in California, the pain spreads across the Southwest. And if California loses more refining capacity, it’s not just residents of Los Angeles or San Francisco who will feel it.

No Evidence of Price Gouging

One of the more interesting takeaways from Mische’s report is what’s not driving up prices: corporate profiteering. Multiple investigations—including those by the FTC, the Federal Reserve, and even the state of California itself—have found no clear evidence of price manipulation by oil companies.

That may not ease public frustration, but it’s a critical distinction: California’s high gas prices stem from policy, not profiteering.

What This Means for Investors

For investors, especially those in the energy space, California serves as a case study in how policy can trump market fundamentals. The state has intentionally made it more expensive to produce and consume gasoline, and it’s seeing the predictable result: higher prices, shrinking supply, and reduced private investment.

Investors should be aware of regional regulatory risks when evaluating energy companies, particularly those with heavy exposure to California or other similarly isolated markets. At the same time, California’s energy policies may present opportunities in adjacent sectors—such as EV infrastructure, battery storage, or renewable fuels.

The Bottom Line

California’s gas prices aren’t high by accident. They’re the product of deliberate decisions—some made decades ago, others more recently. While those policies may align with the state’s environmental and political goals, they come with real economic costs, not just for drivers, but for the energy industry at large.

And those costs are unlikely to go away anytime soon.