Stanford economists have analyzed Governor Gavin Newsom’s special session plan to prevent gasoline price spikes. Their analysis, published in the Sacramento Bee, concludes that the plan is economically sound and addresses a significant problem effectively.
“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,” they stated.
The economists pointed out that Californians paid $2.2 billion extra for gasoline during last September’s gas price spike, which lasted over 100 days. They explained that the California gasoline market does not function properly due to high concentration among in-state suppliers. “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 addressed claims from Big Oil that the proposal would require new infrastructure and increase prices in the West. “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.”
In September 2023, California gasoline prices spiked to $6.08 per gallon due to refinery outages that reduced supply. Governor Newsom proposes increasing gasoline inventories to avoid future shortages.
“What happened last September was nothing short of a gut punch for millions of Californians,” they wrote. Families faced budget strains or had to cancel planned trips, while small businesses struggled with increased transportation costs. Overall, elevated prices persisted for 105 days.
“In a well-functioning market, gasoline suppliers would have prepared for such a disruption,” they noted.
For more details, readers can refer to the full article available at the Sacramento Bee.
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