Would $3 Gas Balance California's Budget?

Energy expert Severin Borenstein suggests a novel strategy to ensure California drivers don't lose their gas-saving habits and vehicle preferences learned when gas cost $4.50/gallon - a 'variable gas surcharge' to stabilize gas prices at $3/gallon.
November 21, 2008, 6am PST | Irvin Dawid
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"At the same time that California faces a budget deficit in excess of $20 billion, motorists have enjoyed declining gas prices - $1 last month alone.

Borenstein, the director of the University of CA Energy Institute, suggests a way that the "state can take a big step toward solving the budget crisis, and avoid a giant step backward on climate change, by putting a floor under the price of gasoline."

"If the state were to put in a sliding-scale gasoline surcharge, it could stabilize gasoline prices...

Here's how it would work: The state would set a gasoline surcharge that moves inversely with the price of oil. Targeting an oil price of $85 per barrel would mean that gasoline prices would stabilize around $3 per gallon. If the price of oil increased, the surcharge would automatically decline so that gas prices would stay about constant. If the price of oil went above $85, the surcharge would automatically disappear.

The surcharge would be based on world oil prices, not the local price of gasoline, so California refiners would have no incentive to raise wholesale gasoline prices to capture some of the surcharge revenue.

What can the state get out of this? More than $10 billion. That's how much the surcharge would likely raise in the first year, which would greatly reduce the deficit."

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Published on Monday, November 17, 2008 in The Sacramento Bee
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