Is Price Gouging Responsible for Washington State’s Nation-High Fuel Costs?

(The Center Square) - In a recent media interview, Gov. Jay Inslee argued that Washington state's nation-high fuel costs were due not to a new cap-and-trade program implemented in January, but "price gouging" by oil and gas companies, claiming they make 80 cents of profit on every gallon.

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"I think the Legislature needs to look at this issue to prevent some of this price gouging," he said. "The author of these prices are the oil and gas companies."

When asked for clarification on Inslee's comment, Communications Director Mike Faulk wrote in an email to The Center Square that "there are a number of potential options to discourage fossil fuel companies from gouging Washingtonians at the pump." That includes a potential "profits penalty" recently enacted in California.

However, Washington Policy Center Environmental Director Todd Myers says the 80 cents per gallon profit statistic isn't telling the whole story. In a recent blog post, he said that the statistic taken from the Oil Price Information Service, or OPIS, "does not measure profit and is not about the oil industry."

Washington's gas prices rank the highest in the nation, even above California. Drivers filling up their vehicles in Washington state pay $.678 per gallon in combined state and federal taxes.

According to Myers, the 80 cents per gallon profit margin is derived from the OPIS's Retail Fuel Watch, "which compares the gross margin between the price of gasoline sold at the wholesale terminal (known as the "rack") and the retail price at the pump."

However, he writes that this represents a gross margin, similar to a gross profit, in which expenses such as credit card fees per transaction are not accounted for in the figure. Additionally, the 80 cents per gallon margin was as of December 2022, Myer writes. Further, he says that margin doesn't apply to oil or gas companies, but to gas stations.

Myers writes: "Remarkably, even if that 85 cents represented profit, it is still less than Washington is taking between the gas tax of 49.4 cents per gallon, and the about 44.3 cents per gallon from the tax on CO2 emissions – 93.7 cents per gallon. Complaining about the 'rapaciousness' of the oil companies when the state of Washington takes more per gallon than anyone else is pretty brazen."

OPIS launched a new program in February to track the cost of Washington's cap-and-trade and low-carbon fuel standard program.

In a February statement, OPIS's Head of Climate and Carbon Markets Lisa Street, said that "according to our analysis, cap-and-invest compliance costs for gasoline and diesel fuel could reach $1.2 million this year alone, but the lack of standardization in how suppliers reflect compliance costs poses a challenge for fuel buyers. It is imperative that entities operating in Washington have access to accurate and reliable price assessments so they can strategically manage costs and risks, and ensure policy-related expenses are applied fairly."