With the 2024 presidential election looming, California Governor Gavin Newsom appears determined to double down on policies that are exacerbating sky-high gasoline prices – not just in his own state, but in neighboring battlegrounds Nevada and Arizona as well.
The potential political blowback could prove disastrous for Democrats’ prospects in those competitive states critical to deciding control of the White House and Congress.
California already suffers the highest gas prices in the continental United States at over $5.21 per gallon on average, compared to the $3.59 national average. The Gulf State’s pump prices are inflated by hefty state taxes and burdensome environmental regulations like cap-and-trade and the low carbon fuel standard.
Compounding matters, over 60% of California’s refineries have shut down in recent decades as the state has waged a relentless war on the oil industry through escalating costs and red tape. Basic economics dictates that restricting supply while demand remains strong will inevitably drive up prices even further.
Here’s where Newsom’s short-sighted policies could kneecap Democrats in November: Nearly 90% of Nevada’s gasoline supply flows from California refineries, as does about half of Arizona’s fuel. That means major pricing shocks in the Golden State immediately ripple through pumps in Las Vegas, Reno, Phoenix and across those two critically important battleground states.
Nevada ($4.38 per gallon) and Arizona ($3.90) already suffer from elevated gas costs compared to the rest of America as a direct result. Any additional upward pressure on California prices gets exported to those states as well by virtue of their reliance on the same source refineries.
Despite this economic reality, Newsom is preparing to deploy a new weapon aimed squarely at neutering California’s remaining domestic fuel production: A tax on refiners’ “gross margins” – the difference between the wholesale cost of gasoline and crude oil prices, plus certain regulatory costs.
Billed as a “penalty” on supposedly excessive profits, the tax would siphon funds into a legislatively-controlled slush fund that conveniently could help Sacramento patch its projected $45 billion budget deficit brought on by Newsom’s reckless spending and economically destructive policies.
Of course, the governor’s crude conflation of gross margins and outright profits is simply false on its face. According to the state’s own energy commission data, California refiners actually lost between 10 and 38 cents on every gallon of gas they produced from October 2023 through February 2024.
Their gross margins during that period ranged from 56 to 79 cents per gallon – a far cry from profiteering when you account for operating costs like labor and the fact that California slapped over $1 per gallon in taxes and regulatory fees on top of those totals.
Nevertheless, Newsom is barreling ahead to finalize the new refinery tax just as the state’s Air Resources Board prepares to tighten its low carbon fuel standard and greenhouse gas emissions cap – regulations estimated to add up to $1.01 per gallon to pump prices by 2031 based on recent cost analyses.
For working families in Nevada and Arizona already struggling with bidenflation and the related affordability crisis, those kinds of additional increases could prove devastating. Especially in Nevada, where tourism is the lifeblood industry and discretionary spending is intricately linked to domestic travel and transportation costs.
Democrats were already facing stiff headwinds in both states heading into 2024 after Biden’s failed policies and California’s reputation for heavy-handed governance helped flip Nevada red in the 2022 midterms.
Exporting even higher fuel costs to those battlegrounds could prove electorally calamitous for a party struggling to retain the suburbs and persuade undecided voters that its left-wing environmentalist agenda won’t come at the expense of their household budgets.
Republicans, led by President Trump and his “Drill Baby Drill” energy platform, now have an even more compelling economic contrast to present voters being squeezed at the pump by Newsom’s climate taxes and war on domestic energy.
For Newsom, who harbors open presidential ambitions himself, the steep political costs may quickly outweigh any quixotic pursuit of environmentalist plaudits if his policies kneecap fellow Democrats where it matters most: the ballot box in 2024. Biden’s own team would be wise to rein in the governor’s ambitions before his overreach delivers even more battleground states to the GOP.