Stanford economists praise Governor Newsom’s plan to prevent gas price spikes
SACRAMENTO – In an article for the Sacramento Bee today, Stanford economists analyzed Governor Gavin Newsom’s special session plan to prevent gasoline price spikes.
Their takeaway? “It is an economically sound policy that addresses an important problem in a well-targeted way. The California Legislature should pass it in the special session.”
The economists highlighted the fact that “Californians paid $2.2 billion extra for gasoline” during last September’s gas price spike that lasted for over 100 days. However, they note, “the California gasoline market does not function properly… In-state suppliers are highly concentrated, with five companies controlling a whopping 98 percent of the capacity to produce California-grade gas. With so much market power, the incentives to build up robust reserves are limited.”
They also refuted Big Oil’s talking points that the proposal would require new infrastructure and drive prices in the West higher. “During a supply crunch, the release of these inventories would put downward pressure on prices in California. If anything, this additional supply would free up refinery capacity to serve Nevada and Arizona, also reducing prices in these markets.”
ICYMI: Limited gas supplies drive California price spikes. Newsom’s reserve plan makes sense
By Neale Mahoney and Ryan Cummings
September 30, 2024
In September 2023, California gasoline prices spiked to $6.08 per gallon, up $1.22 from their average from April to July of that year. A cause of the price spike was refinery outages that reduced the supply of gasoline to the market. Gov. Gavin Newsom proposes to prevent future price spikes by increasing gasoline inventories to avoid shortages. He’s on the right track.
What happened last September was nothing short of a gut punch for millions of Californians. Families were forced to choose between busting their budgets or canceling planned Labor Day road trips. Small businesses were strained by the costs of transporting employees to worksites and products to customers. All told, prices were elevated for 105 days, and Californians paid $2.2 billion extra for gasoline. In a well-functioning market, gasoline suppliers would have prepared for such a disruption, blunting any impact on prices.
In-state suppliers would have built up reserves of gasoline. Out-of-state suppliers would have rushed gasoline to market, earning a profit while also driving down the pump prices in the Golden State.