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California's 'Hidden Gas Tax' Arrives, Goes Unnoticed

The oil industry was predicting motorist outrage and an increase in gas prices of around 70-cents due to the carbon charge effective in the state on January 1. Some prices increased 10-cents, but went largely unnoticed.
January 6, 2015, 12pm PST | Irvin Dawid
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Richard Masoner / Cyclelicious

The so-called ''hidden gas tax," a term concocted by the oil industry and others opposed to transportation fuels entering the nation's most far-reaching cap-and-trade market, is, in fact, a wholesale charge paid by fuel suppliers required to purchase carbon allowances from the California Air Resources Board (CARB). Oil refineries, power plants, and other large carbon emitters have been under cap-and-trade since compliance began in 2013.

"Last year, as retail prices hit $4.30 a gallon, oil-industry trade groups warned the [carbon] fee was a 'hidden tax' that could add 70 cents a gallon or more," writes Dan McSwain, business columnist for U-T San Diego. "However, this week the fee added just 10 cents a gallon to wholesale costs, based on November auction prices in the state’s 'cap-and-trade' market that sets the fee." That's exactly what University of California, Berkeley energy economist, Severin Borenstein, predicted here in August.

All things considered, it’s clearly not going be a fuel apocalypse,” said Tom Kloza, global head of energy analysis for Oil Price Information Service, which is based in Gaithersburg, Md.

In fact, according to the "(n)ational gas price tracker, the average retail price of gas in California on (Jan. 02) was $2.64 a gallon, up 2 cents from New Year’s Day," writes Marks Glover of The Sacramento Bee.

Although the carbon charge is not a tax, it will likely be considered a fee, and will thus be included in the American Petroleum Institute's tabulation of state fuel taxes and fees. As of Oct 1, 2014, California is listed as #2, at $.4847 per gallon, behind N.Y. at $.5025. It's possible that California will retake its first place position when the charts are updated which the oil industry will use in their campaign to exempt transportation fuels from the cap-and-trade market.

Unlike the state excise tax which funds the Highway Users Account (per Article 19, 1970), carbon charges, along with other cap-and-trade auction proceeds, will be applied to projects that reduce greenhouse gas (GHG) emissions. According to CARB:

The Legislature and Governor appropriate proceeds from the sale of State-owned allowances for projects that support the goals of AB 32. Strategic investment of these proceeds furthers the goals of AB 32 by reducing GHG emissions, providing net GHG sequestration, and supporting the long-term, transformative efforts needed to improve public and environmental health and develop a clean energy economy.

See "Calif. Governor Signs Game-Changing Budget for HSR, Transit, and Affordable Housing," for information on how these funds will be spent. Consequently, "the deferred maintenance on our roads" that Gov. Jerry Brown referenced in his Jan. 05 Inaugural Address will see no improvement despite the expected 10-cents additional charge to gas prices.

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Published on Monday, January 5, 2015 in San Diego Union-Tribune
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