The Cost of Cheap Gas
Gasoline prices can vary widely from state to state, and California often finds itself at the higher end of the spectrum. As Californians grapple with the frustration of high gas prices, there’s a trend of statements about the states where the pump prices seem more affordable, and they consider leaving the state. However, when you peel back the layers and examine the realities beyond the allure of seemingly lower gas costs, you may have unintended consequences.
There are several reasons why gas is more expensive in California: California imposes some of the highest gasoline taxes in the country. As of 2022, the state’s gas tax includes a base excise tax of 51.1 cents per gallon, which is among the highest in the nation. Additionally, there is a 2.25% sales tax on gasoline. These taxes are used to fund various transportation projects, road maintenance, and environmental initiatives. California requires the California Reformulated Gasoline (CaRFG) blend, designed to reduce air pollution and combat smog, which can contribute to higher prices. California is a large state with a significant population, meaning there is a high demand for gasoline. However, the state also has limited refinery capacity compared to its demand, that leads to supply shortages and the need to transport gasoline longer distances, adding to the cost. California has a cap-and-trade program aimed at reducing greenhouse gas emissions, which requires fuel suppliers to purchase permits for their emissions, adding another cost that can translate to higher prices. California also, as we know, has a higher cost of living which extends to goods and services, including gasoline, as businesses adjust prices to reflect the overall cost of doing business in the state.
Gasoline prices are also influenced by global oil prices, which can fluctuate due to geopolitical events, supply and demand, and other factors. California’s location on the West Coast can make it more at risk to disruptions in oil supply from the Pacific Rim countries. California’s oil often comes from areas mired in conflict, such as the Middle East. Any disruption or unrest in these regions can send shockwaves through the global oil market, directly impacting prices at home. Lowering gas prices too abruptly, also has its risks, because as mentioned, we get our oil from countries that depend on it for their economies. When gas prices went below $2, in 2016, economists were worried about Iran and Russia, facing potential instability with unprofitable oil markets.
In the beginning of 2022, gas hovered around $4 a gallon, and Russia became unstable and went to war. Russia is one of the world’s largest producers and exporters of natural gas. Military conflict adds a risk premium to energy prices. Investors become wary of the instability, leading to higher prices to offset potential risks. The international community responded with sanctions against Russia, particularly targeting its energy sector. Such measures further tighten global supply and increase prices. However, these actions often come with a balancing act, as imposing sanctions risks further destabilizing energy markets. The conflict between Russia and Ukraine, especially if Russia continues to gain ground, significantly impacted gas prices worldwide. From supply disruptions to market speculation, the situation created a volatile environment for energy markets. Consumers, businesses, and policymakers will need to navigate these challenges, understanding that the effects of the conflict extend far beyond the borders of the nations directly involved.
But let’s not also forget that above all that oil companies make billions of dollars in profit have shareholders whose bottom line expectations drive the cost of gasoline. Gas price instability, specifically, a lowering in prices, ripples through global financial markets, affecting stock prices and investor confidence. For anyone with an IRA or 401(K) invested in the market, it’s a cautionary note to review portfolios, ensuring they aren’t overly exposed to energy companies amidst the volatility.
So let’s take a look at these other states and see if living there would be worth the cheap gas. States with seemingly low or no taxes on oil often make up for it in other areas. Whether through higher sales taxes, income taxes, or hidden fees, residents of these states end up shouldering the burden elsewhere.
While some states boast about their low gas prices, they often fail to mention their reliance on federal redistribution. States like California contribute significantly to federal coffers, which then get redistributed to these states with seemingly cheaper gas. This means that the seemingly lower prices in these states are, in part, subsidized by contributions from others. Alternatively, some states subsidize gas prices, a move that goes against the notion that government shouldn’t intervene in market forces.
Colorado is averaging $3.00 a gallon. Despite its scenic landscapes, Colorado ranks as the fourth worst state for violent crime according to Forbes, casting a shadow over its idyllic image.
Texas is averaging $2.80 a gallon. Texas might offer lower gas prices, and it also ranks 11th most dangerous state in the US, and holds the 18th highest rape rate in the nation. In 2023, Texas topped the list with over 100,000 registered sex offenders, a sobering statistic that challenges the narrative of a safer haven.
The ten cheapest states with gas all under $3.00 a gallon (in most places) are: South Carolina, Tennessee, Kansas, Alabama, Louisiana, Oklahoma, Arkansas, Missouri, Texas, and Mississippi.
The ten states with the worst education systems, as reported by Intelligent.com, include Tennessee, Oklahoma, Alabama, Nevada, Wyoming, West Virginia, Alaska, Oregon, Idaho, Louisiana, South Carolina, Mississippi, and New Mexico. It begs the question: are cheaper gas prices worth compromising the quality of education for our children?
Georgia, Alabama, North Carolina, Mississippi, South Carolina, Arkansas, New Mexico, Texas, Nevada, and Indiana rank among the worst for healthcare, according to Forbes. Lower gas prices might come at the cost of compromised healthcare access and quality of life.
The ten poorest states are Mississippi, Louisiana, New Mexico, West Virginia, Kentucky, Arkansas, Alabama, Oklahoma, South Carolina, and Tennessee.
While the frustration of high gas prices is understandable, the grass may not always be greener in states with seemingly cheaper fuel. As consumers weigh their options, it’s crucial to consider the broader implications beyond the pump. Quality education, healthcare, and safety are pillars of a thriving community, aspects that shouldn’t be sacrificed solely for a few cents less at the gas station.
In the end, the cost of cheap gas might be more than what meets the eye, demanding a closer examination of the true value of where we choose to live.
