The argument that gas prices will go up in California rests on three assumptions (1) that oil production will decrease in CA as a result of prop 87, (2) that decrease will cause the prices refiners pay for gasoline to increase, (3) and that increase will passed on to consumers.
(1) I heard zero credible arguments for the production will decrease. Oil production is falling in CA in-spite of rising oil and gasoline prices. If you empirically derived the supply curve for CA oil from the production and price data over the last 10 years, you have a downward sloping supply curve. Suppliers are apparently producing more when the price is lower. Clearly, the lower prices were not causing supplier to produce more but claims that supply curve shifts due to price or cost are empirically false. The supply curve is vertical against any reasonable range of price. Additionally, I would challenge anyone who thinks the price will increase to name one project that will receive reduced investment due to prop 87. I’ve made this challenge on other sites and so far no takers.
(2) While all oil is not the same, this argument assumes there is a substitution cost for using non-CA oil. Again, zero evidence presented any where. I’ve seen this assertion over and over again but nobody can back it up. CA produces less than 1% of the world’s oil but we use more than 1% of of the world’s oil so our refineries must already be using foreign oil.
(3) CA has consistently higher gasoline prices than the rest of the nation. Aside from deflating the theory that in-state production lowers gasoline prices, this fact shows that refiners have market power since there is no cost reason why CA gas should cost more. As such, refiners are pricing more reductions in marginal revenue than increases in marginal cost.
At the end of the day, anybody with mean prediction and a confidence interval for this illusory gas price increase due to prop 87 is blowing smoke. This increase could literally be $0.000000001 / gallon.
In fact, fuel costs go down with prop 87 because alternative energy research funded by prop 87 brings new cheaper technology.
