California Gas Prices Skyrocket with New Tax Hike

Written by Elizabeth Harper.

Starting July 1, 2025, California drivers will face a sharp increase in fuel costs as new gas taxes and stringent low-carbon fuel standards take effect, potentially driving prices to $6 per gallon or higher. This surge, driven by a combination of a higher excise tax and regulatory changes, will further strain residents in a state already grappling with the nation’s highest gas prices. The policies, enacted under Governor Gavin Newsom’s administration, aim to curb emissions but have sparked concerns about affordability and their impact on the state’s economy.

Breakdown of the Gas Tax Increase

The impending price hike stems from multiple factors, the most immediate being a 1.6-cent-per-gallon increase in California’s excise tax, which funds road maintenance and infrastructure. This adjustment, while modest, adds to an already hefty tax burden, with the state’s total gas tax reaching 57.9 cents per gallon in 2024, according to the California Department of Tax and Fee Administration. Combined with federal taxes and local levies, drivers face over 80 cents per gallon in taxes before accounting for additional costs.

More significantly, the Low Carbon Fuel Standard (LCFS) program, revised by the California Air Resources Board in November 2024, imposes stricter requirements on fuel producers to reduce carbon intensity. This mandates costlier production methods and cleaner fuel blends, expenses that producers are likely to pass on to consumers. Industry analysts estimate the LCFS could add 50 to 65 cents per gallon, pushing average prices in urban areas like Los Angeles and San Francisco toward $6 or more by late summer.

Impact on California Drivers and Economy

For California’s 39 million residents, the gas price surge exacerbates financial pressures in a state where the cost of living is among the highest in the U.S. A 2024 report from the U.S. Bureau of Labor Statistics noted that transportation accounts for 17% of household budgets in California, with fuel costs disproportionately affecting low- and middle-income families. For a household driving 1,200 miles monthly in a vehicle averaging 25 miles per gallon, a 65-cent price increase translates to an additional $31 per month—a significant burden for many.

The ripple effects extend beyond individual budgets. California’s economy, heavily reliant on transportation for agriculture, logistics, and tourism, faces increased operating costs. For example, the state’s trucking industry, which moves $800 billion in goods annually, could see fuel expenses rise by millions, potentially driving up prices for consumer goods. Small businesses, particularly in rural areas where electric vehicle (EV) infrastructure is sparse, may struggle to absorb these costs, threatening local economies.

Policy Goals and Public Response

The tax increases and LCFS align with California’s ambitious climate goals, including a 50% reduction in greenhouse gas emissions by 2030 and a ban on new gas-powered vehicle sales by 2035. Proponents argue that higher gas prices incentivize EV adoption and public transit use, reducing the state’s reliance on fossil fuels. However, EV sales have lagged, with only 25% of new vehicle registrations in 2024 being electric, far below the state’s target of 35%. Limited charging infrastructure and high EV costs—averaging $55,000 per vehicle—have deterred widespread adoption.

Public sentiment is mixed. Urban residents, with access to public transit and charging stations, are more likely to support the policies, while rural and suburban drivers express frustration. A 2025 poll by the Public Policy Institute of California found that 62% of residents view gas prices as a “serious problem,” and 45% oppose further tax increases. Critics argue that the policies disproportionately harm low-income households, who are less able to afford EVs or relocate closer to transit hubs, highlighting a tension between environmental goals and economic equity.

Our Take

California’s latest gas tax hike and low-carbon fuel standards reflect a bold commitment to combating climate change, but they risk deepening economic disparities in an already costly state. While the push for cleaner fuels and EV adoption is laudable, the immediate financial strain on drivers and businesses underscores the need for a balanced approach. Investments in affordable EV options and expanded charging infrastructure could ease the transition, ensuring that environmental progress does not come at the expense of the state’s most vulnerable residents. Without such measures, California’s climate agenda may falter under the weight of public discontent.