Regan Brown
California's gasoline tax will increase by 1.6 cents per gallon from July 1, 2025, as required by law. This annual inflation increase was enacted by the Legislature in 2017 to fund road repairs. The tax increase is expected to be accompanied by changes to the state's Low Carbon Fuel Standard (LCFS), which is projected to add between 5 and 8 cents per gallon. Despite fears of a sharp increase in gas prices, experts predict that the impact on prices will be uncertain and dependent on the oil industry's actions. California's gas prices have also been lower than in previous months and years, despite misinformation suggesting significant increases.
| Characteristics | Values |
|---|---|
| Location | California |
| Date of tax increase | 1 July 2025 |
| Amount of increase | 1.6 cents per gallon |
| Previous increase | 12 cents per gallon (2017) |
| Current average price of gas | $4.59 per gallon |
| Previous average price of gas | $4.66 per gallon (one week ago), $4.80 (one month ago) |
| National average price of gas | $3.19 per gallon |
| Predicted increase in gas prices | 5-8 cents per gallon |
| Predicted increase in gas prices (speculative) | 17-23 cents, 47 cents, or 65 cents |
| Reason for tax increase | To help pay for road repairs |
| Reason for predicted increase in gas prices | Changes to the Low Carbon Fuel Standard |
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What You'll Learn
California's gas tax increase
California's gas tax is set to increase by 1.6 cents per gallon from July 1, 2025. This annual inflation increase was enacted by the Legislature in 2017 to fund road repairs and was approved by voters in 2018. The tax rate has more than doubled over the past decade, with the largest year-to-year increase occurring in 2017, when the gas tax rose by 12 cents per gallon.
In addition to the gas tax increase, changes to California's Low Carbon Fuel Standard (LCFS) are expected to come into effect on July 1, 2025. LCFS is not a tax but a program established by Republican Governor Arnold Schwarzenegger to reduce the environmental impact of transportation fuels by incentivizing producers to cut emissions. Experts estimate that LCFS could add between 5 and 8 cents per gallon, while critics claim it could raise prices by up to 65 cents per gallon. However, LCFS is projected to reduce fuel costs for Californians per mile by 42% by 2045, resulting in savings of over $20 billion annually.
The gas tax increase and LCFS changes have sparked controversy, with accusations of misinformation and a lack of transparency from the California Department of Tax and Fee Administration (CDTFA). Despite claims that gas prices will soar, California gas prices are currently 20 cents lower than a month ago and 17 cents lower than a year ago. Stanford economists and the California Air Resources Board (CARB) have stated that any price increases will be negligible.
The impact of California's gas tax increase and LCFS changes remains uncertain, with conflicting projections and political debates surrounding the potential effects on fuel costs.
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Impact of Trump's policies
While it is challenging to attribute fuel price changes directly to Trump's policies, his administration's actions have had notable impacts on the energy sector. Firstly, Trump's tariffs and policies have influenced the price of crude oil, which can significantly affect gas prices. The specifics of these policies and their precise effects are not provided in the sources.
Secondly, Trump's "One Big Beautiful Bill Act" has been described as a boon for the oil, gas, and coal industries, providing them with historic access to federal lands. This legislation also ends key tax credits and support for renewable energy sources like solar and wind power. The phase-out of federal incentives for the transition to renewables is intended to boost fossil fuel production. This shift in focus from renewable energy to fossil fuels can influence fuel prices, making them more affordable in the short term.
Trump's policies have also impacted the royalties that oil and gas producers pay to the government for extracting resources on federal lands. The law slashes these royalties, encouraging higher output and potentially affecting fuel prices by increasing supply. Additionally, the law includes incentives for producers to use carbon capture tax credits, providing benefits for injecting carbon emissions into wells to produce more oil.
Trump has also made inaccurate claims about gas prices, stating that prices in certain states had fallen to $1.98 or $1.99 per gallon. These statements were fact-checked and found to be false, with the lowest state average price being higher than the claimed figures. However, gas prices have seen a downward trend, with prices estimated to be about $3.15 per gallon on Independence Day 2025, which would be the lowest for a July 4 holiday in four years. This decrease in gas prices may be attributed to various factors, including Trump's policies, supply and demand dynamics, and geopolitical tensions.
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Clean-fuel program
In the context of rising fuel prices, clean-fuel programs are designed to reduce fuel costs and promote the use of cleaner energy sources. One example of a clean-fuel program is Oregon's Clean Fuels Program, which aims to reduce greenhouse gas emissions and promote the use of cleaner fuels.
In California, the state's Low Carbon Fuel Standard (LCFS) is expected to reduce fuel costs per mile by 42%, resulting in savings of over $20 billion in gasoline costs annually by 2045. The LCFS was established by Republican Governor Arnold Schwarzenegger and is designed to reduce the state's carbon emissions. While it may add a small cost to each gallon of fuel in the short term, the overall impact is expected to be a significant reduction in fuel costs for Californians.
Additionally, California's gasoline tax, which includes an annual inflation increase of 1.6 cents per gallon, is intended to help pay for road repairs. This tax increase was enacted by the Legislature in 2017 and approved by voters in 2018. Despite concerns about rising gas prices, California's gas prices are currently lower than they were one month and one year ago, and the state ranks 45th in the nation for gasoline consumption.
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Low Carbon Fuel Standard
California's gasoline tax will increase by 1.6 cents per gallon, starting July 1, 2025. This annual inflation increase was enacted by the Legislature in 2017 to help pay for road repairs and was approved by voters in 2018. In addition to this, changes to the state's Low Carbon Fuel Standard (LCFS) are also set to go into effect on July 1, 2025.
The LCFS is an emissions trading rule designed to reduce the average carbon intensity of transportation fuels in a given jurisdiction, as compared to conventional petroleum fuels. The program requires a reduction in the carbon intensity of transportation fuels that are sold, supplied, or offered for sale in the state through 2030. The California Air Resources Board (CARB) regulations require transportation fuel producers and importers to meet specified average carbon intensity requirements for fuel. LCFS-regulated fuels include natural gas, electricity, hydrogen, gasoline mixed with at least 10% corn-derived ethanol, biomass-based diesel, and propane.
The main purpose of the LCFS is to decrease the carbon dioxide emissions associated with vehicles powered by various types of internal combustion engines. The standard also aims to reduce the state's dependence on petroleum, create a market for clean transportation technology, and stimulate the production and use of alternative, low-carbon fuels. The LCFS is a mix of command and control regulation and emissions trading, allowing providers to choose how they will meet the established targets.
Experts estimate that the LCFS program could add between 5 and 8 cents per gallon in the short term. However, in the long term, it is estimated to reduce fuel costs for Californians per mile by 42%, resulting in savings of over $20 billion in gasoline costs annually by 2045.
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Gas tax history
The history of gas taxes in the United States dates back to the early 20th century. The first US state to tax fuel was Oregon, which introduced a 1-cent tax per gallon on February 25, 1919. In the following decade, all US states and the District of Columbia followed suit and implemented a gasoline tax. By 1939, the average fuel tax levied by many states had increased to 3.8 cents per gallon.
The first federal gasoline tax was created on June 6, 1932, with the enactment of the Revenue Act of 1932, which established a 1-cent tax per gallon. This tax was set to expire at the end of June 1933, but it was extended and increased to 1.5 cents per gallon through the National Industrial Recovery Act of 1933. The Revenue Act of 1934 rescinded the half-cent increase, but the tax was made permanent at 1.5 cents per gallon in 1941 to fund the country's defense buildup. After World War II, opposition to the federal gas tax emerged from auto, oil, and travel interests, as well as from the states, which argued that the gas tax should be under their jurisdiction.
Since 1993, the federal gasoline tax rate has remained unchanged at 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel fuel. However, state and local taxes and fees vary, resulting in a volume-weighted average fuel tax of 52.64 cents per gallon for gasoline and 60.29 cents per gallon for diesel as of April 2019.
In recent years, there have been efforts to adjust gas taxes to address environmental concerns and reduce greenhouse gas emissions. For example, California's Low Carbon Fuel Standard, which took effect in 2011, added 9 cents to the cost of a gallon. The state's gasoline excise tax, which is adjusted annually, is set to increase by 1.6 cents per gallon in July 2025.
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Frequently asked questions
California's gasoline tax increased by 1.6 cents per gallon on July 1, 2025.
The previous increase in the gas tax in California was in 2017, when it increased by 12 cents per gallon.
The gas tax increase in California is intended to help pay for road repairs and improvements.
Due to improvements in fuel efficiency, California drivers rank 45th in the nation for gasoline consumption and 21st in spending on gasoline per capita.
While there are concerns about a 65-cent jump in gas prices, experts believe that an increase of 8 to 9 cents per gallon is more likely.
