Below are the monthly updates from the most current December 2020 fuel price data (GasBuddy.com) and October 2020 electricity and natural gas price data (US Energy Information Agency).
While the state’s regulatory surcharge on fuels eased slightly in December, prices for other energy components continued to climb higher. The resulting high costs on housing, transportation, and food and other goods will continue to weigh on the recovery prospects for both households and businesses. As discussed in last month’s analysis, these costs will in particular be borne by the population serving and tourism services industries and their lower wage employers that have been the hardest hit economically by the state’s actions in response to the current crisis. Higher wage industries and their workers instead have been able to bypass much of these additional California costs in the current circumstances through strategies such as telework and even leaving for lower cost locations through the apparent growing exodus from the state.
The state’s high energy prices stem from the various regulatory actions incorporated into the climate change program. As discussed in our October analysis, this outcome is not the cost of undertaking a climate program in itself, but rather the cost of the approach the state has chosen to pursue, in particular its heavy emphasis on command-and-control regulations applied to an ever-expanding portion of the economy and its decisions to emphasis particular technologies and strategies regardless of cost effectiveness considerations or in some cases—as analyzed in our recent Telecommuting report—regardless of whether they result in any emission reductions at all.
Comparing the most recent emissions inventory for 2018 to the comparable national numbers, California’s progress in reducing climate change emissions is little different from that of the nation as whole. The difference is cost. California’s approach has saddled both households and businesses with high and growing energy prices that contributed heavily to the state’s high costs of living and costs of doing business even prior to the current crisis. As they continue to grow, the high energy costs essentially unique to this state will remain a barrier to recovery, dwarfing what limited efforts are underway to restore jobs and incomes for the lower wage households that have borne the brunt of the economic costs in the current crisis.
The total cost to California households and businesses remains high even with economic activity well below the pre-pandemic levels:
- Gasoline and diesel are produced in California under regulatory formulations unique to this state. The added compliance costs along with cap-and-trade produced a sustained price gap compared to the other states even in normal circumstances. While prices have been largely stable since the current crisis began last spring, these same requirements also maintain a regulatory barrier separating California from the broader fuel markets in the US and the rest of world. Consequently, any disruption to the state’s production—such as what has occurred in the past during delays in the biannual changeovers between summer and winter formulations—have been magnified into price spikes that would otherwise be quickly moderated in other states through additional supplies.
Using taxable sales data from Department of Tax & Fee Administration, even accounting for lower fuel use during the current crisis, these regulatory surcharges saw California households and businesses paying an additional $15.3 billion for gasoline and $3.0 billion for diesel compared to the average price in the other states over the most recent 12-month period for which data is available.
- Electricity prices have grown to some of the highest among the states. In 2010 when the state’s climate change program began under the AB 32 early action items, the average residential electric bill (12-month moving average) was 27% below the average bill in the other states. Despite the state’s milder climate but because of a rapid rise in rates, the latest data shows the average California bill is now only 2% shy of the average for the rest of the US. Away from the higher income-milder climate coastal centers, electric usage is even higher, ranging up to 55% higher in the hotter interior regions. In total, residential customers paid $7.2 billion more compared to the average price elsewhere in the US over the most recent 12-month period for which data is available.
The price difference for businesses is even larger, with commercial rates the highest of the contiguous states and industrial rates behind only Rhode Island. In total from the most recent data, business customers paid $11.8 billion more annually compared to the average price elsewhere in the US. And this added cost burden is accelerating. In the most recent 12 months, this cost disadvantage expanded by $1.1 billion. At this rate, the continuing rise in electricity costs alone will more than negate the additional COVID business relief the governor will propose in his 2021-22 budget.
- Natural Gas prices have shown some of the most dramatic increases, with residential rates (12-month moving average) going from the 37th highest in 2010 to 10th highest in October, commercial rates going from 39th to 12th, and industrial rates going from 26th to 9th. Based on the most recent data, residential customers paid $1.7 billion more annually compared to the average price in the other states, and business customers paid $3.9 billion more.
In the current crisis, these added regulatory costs have further drained household and business resources as they struggle with the economic downturn. As the state turns to recovery, the energy regulations will continue to impose a cost burden of $43 billion and growing compared to the other states.