HARRISBURG, Pa. & SACRAMENTO -- Two states are poised for about a 10-cent-per-gallon (CPG) increase in gas prices as the calendar opens on 2015.
Pennsylvania Bump
In Pennsylvania, the second increase in the cap on the state’s oil-company-franchise tax (OCFT), a wholesale gas tax, is poised to go into effect on Jan. 1. The OCFT taxes gasoline and diesel at the rack, and had formally been capped at $1.25 per gallon since 1983. Its revenues are earmarked for highway and bridge repair.
In 2013, the state legislature voted to uncap the wholesale tax over a five-year period (while repealing the flat gas tax) to raise more infrastructure funding, first by raising the cap in 2014 and 2015, and then removing it completely in 2017.
The OCFT cap rose to $1.87 on Jan. 1, 2014, and will be increasing to $2.49 per gallon on Jan. 1, 2015. The revenue department determines the CPG equivalent of the OCFT based upon the mileage rate of the OCFT and the average wholesale price of liquid fuels for a one-year period. Thus, the motor-fuel tax rate on gasoline will increase 9.8 CPG to 50.5 CPG in 2015, while the diesel tax rate will grow from 51.0 CPG to 64.2 CPG. While the tax is levied against fuel distributors, it has typically been passed down to consumers.
California Twist
Meanwhile in California, the state’s cap-and-trade framework within the Global Warming Solutions Act, or AB 32, is set to impact transportation fuels as of Jan. 1. While opponents have warned that this “hidden gas tax” could raise retail gas prices by as much as 16 to 76 CPG, recent analysis suggests a more modest impact, reports The Press Enterprise.
Severin Borenstein, a professor of business administration and public policy at the University of California Berkeley’s Haas School of Business, had estimated a 9- to 10-CPG increase back in August—a range that is also now anticipated by officials at the California Air Resources Board, which is executing the cap-and-trade regulations.
Through the cap-and-trade system, large industries that exceed state maximum greenhouse gas emission standards must buy allowances at auction to cover the excess emissions. Those who fall below the standard can sell their excess allowances. Transportation fuel distributors become subject to the regulations as of Jan. 1, 2015.
The most recent cap-and-trade auction in November resulted in an allowance rate of $12.10 per ton of carbon dioxide equivalents, which is how analysts determined the CPG increase, Borenstein told the newspaper.
“There is no rocket science here,” he said. “If it is $12 a ton, it is going to raise gas prices 9 or 10 cents.”
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