Republicans have resisted Democrats’ preferred approach, but California’s business lobby has pressed both parties to embrace new taxes and fees. “Last week, business organizations such as the California Chamber of Commerce and the Silicon Valley Leadership Group said any deal should seek to raise at least $6 billion annually by raising gas and diesel taxes and increasing vehicle registration and license fees,” the San Jose Mercury News reported.

Part of the rationale for increasing fees, instead of simply dialing up gas taxes, has centered around the growing popularity of hybrid and electric vehicles in California — and the state’s interest in squeezing revenue out of every car on the road. “We have these Teslas that are being sold and they don’t pay any gas tax,” complained state Sen. Jim Beall, D-San Jose, as CBS Sacramento noted.

Gas in California has remained higher on average than out-of-state, thanks to cap-and-trade fees and the state’s unique environmental rules about the blends of gasoline that must be sold. Current state taxes include an excise tax of 39 cents, between 30 and 42 cents in sales tax, and 10 cents for the cap-and-trade levy, as Watchdog Arena observed.

Brown stays secretive

At a recent news conference that left some observers hungry for detail scratching their heads, Brown refused to hint at a revenue source for the improvements. “I’m not going to say where the revenue’s going to come from, how we’re going to get it,” he said. “We’ll get it done, but I’m not going to put all my cards on the table this morning,” Brown said, according to ABC 7 News.

Brown was joined at the appearance by Assembly Speaker Toni Atkins, D-San Diego, who signaled separately that negotiations would be tough. “It will be a bumpy road, but our constituents expect us to work together and figure something out,” she told the San Francisco Chronicle.

To date, the governor has not let slip whether he would support or oppose a tax hike to make up the difference.

The probe complicated an already politically charged environment surrounding California gasoline. Cap-and-trade rules were applied this year that extended taxation to gas. Meanwhile, criticism has mounted over the cost and availability of the special blend of gas required by law in California.

Exploring collusion

Although the push toward alternative fuels could have contributed to the spike, Senate Democrats have focused the legislative probe on a much different idea: industry price-fixing. “Sen. Ben Hueso, D-San Diego, chaired the hearing and returned several times to one suspicion: that the tiny pool of refiners responsible for producing California’s unique fuel blends may be colluding to keep prices artificially high,” the Los Angeles Times reported. “Do we have monopolies on fuel in California?” he asked. “We want to know if we don’t have a competitive-enough market to keep prices low.”

The line of inquiry could hit an unusual political sweet spot. Though Republicans have long sought to shield the energy industry from environmentalists’ sweeping regulatory objectives, California conservatives and libertarians have also maintained a strong pro-car and pro-consumer stance. The state gas industry would be left with few allies amid any price-fixing scandal that took advantage of California’s limited supply of special-blend gas.

The cleaner-burning fuel, mandated during an environmentalist push in the 1990s, has never been available outside California itself, creating serious supply problems in the event of an interruption or crisis. “We are one of 17 states using reformulated gas,” the San Jose Mercury News explained, “and about 30 percent of gas sold in the U.S. is reformulated. The problem is that there isn’t a single blend required, or otherwise California could use other states’ fuel when it’s running low, and vice versa.”

An environmental agenda

Tom Steyer

But Democrats have a bigger political interest in hitting up energy companies for money than they do keeping gas prices low. Party heavyweight and environmentalist donor Tom Steyer recently threw his support behind the probe. But as the Sacramento Bee reported, it has remained “unclear whether Steyer and his allies will get the answers they want. Political pressure from Sacramento over the years has resulted in few changes, and Democrats will not say whether they plan follow-up hearings or legislation in response to the latest price increases.”

Drawing cap-and-trade revenue from the gas industry has been seen as essential to distributing costs away from consumers alone. Although they’ll still pay at the pump, their driving habits have proven more responsive to policy nudges than their home energy use, where regulations and incentives have been seen as more invasive and unwelcome.

Republican countermeasures

In hopes of seizing the moment to revisit a key issue, Republican lawmakers have chosen to reintroduce their effort to roll back the cap-and-trade extension to gasoline, backing a proposal introduced by Assemblyman Jim Patterson, R-Fresno. Democrats were divided last year over the extension.

“With oil companies and the nonpartisan Legislative Analyst’s Office warning of a spike in gas prices, a group of Democrats last year sent a letter to the California Air Resources Board urging a delay,” the Bee noted. “While a bill doing so never got a hearing, the industry bankrolled advertisements during the election slamming candidates who support cap-and-trade.”

But the new Republican measure would go beyond what moderate Democrats had supported last year, leaving its fate, for now, still very much in question.

Steinberg has opposed a cap-and-trade emissions tax on gasoline suppliers and consumers similar to what has been enacted — under AB32, the Global Warming Solutions Act of 2006 —  as the state’s cap-and-trade program for other industries. Under that program, the California Air Resources Board has been trading carbon credits for more than a year.

According to KQMD, “Next year for the first time, transportation fuels will come under the program: oil companies will have to account for the emissions from Californians’ cars and trucks. The cost of buying additional pollution permits is one that companies are almost certain to pass along to consumers.”

A cap-and-trade tax limits the amount you can pollute unless you want to buy a permit to pollute over the limit. You then can “trade” your excess permits if you don’t go over the limit.

Instead, Steinberg favors a simpler gasoline tax, which he says would not cost more than what cap and trade would cost consumers. That is, it’s supposed to be a replacement tax. And Steinberg’s gas tax is called a “carbon tax,” which makes it sound more environmentally fashionable and legitimate.

In a statement, the Western States Petroleum Association said:

“Sen. Steinberg deserves credit for his transparent effort to address the the true cost of California’s climate change policies.  By acknowledging that the state’s cap-and-trade regulations for fuels are about to have a significant impact on the cost of fuel for consumers, Sen. Steinberg has proposed a transparent carbon tax as an alternative.”

The statement acknowledges that the current system under AB32 is a tax, even though it wasn’t sold that way to the state’s citizens when the bill was passed by the Legislature in 2006, and signed into law by then-Gov. Arnold Schwarzenegger.

The problem is that it remains speculative how much cap and trade on vehicle fuels will cost consumers. There is also a possibility we might end up with both taxes.

Double taxation

Assuming Steinberg’s “carbon tax” goes into effect, it would be on top of the already hefty California tax of 71.9 cents a gallon, the highest in the nation. Just last summer, the gas tax was boosted by 3.5 cents. But even taxes on supposedly greedy oil companies would just be passed through to consumers as an estimated 12 cents per gallon excise tax. An excise tax is a tax on top of a tax.

Using a figure of 15.9 billion gallons of gasoline consumed in California in 2011, the added 12 cents per gallon would equate to about $1.9 billion in added gas taxes. So the new tax would bring gasoline taxes up to 83.9 cents per gallon. A 10-gallon fill-up at a service station would then cost $8.39 in taxes. 

Where would carbon tax on gasoline be spent?  

By calling the gasoline tax a “carbon tax,” the taxes collected wouldn’t be spent on pouring concrete for highways. Rather, they would be spent on programs to reduce “greenhouse gases.” Steinberg said he wants to spend the new gas taxes to “improve public transportation and provide an income tax rebate to families earning less than $75,000.” Steinberg has not spelled out whether “public transportation improvement” means the High-Speed Rail, but that could happen.

And would Brown support spending a carbon tax to fund High-Speed Rail, a project he keeps promoting?

That’s where the election comes in. In 2010, Brown won the governorship in part on a campaign promise not to enact any new taxes without voter approval. Hence, his $7 billion tax increase in 2012 became law only after voters passed Proposition 30.

Which is why it could be Brown who steps on the brakes for any new taxes this year, including Steinberg’s gas tax proposal. Californians have been cringing at the pump again as gas prices, due to refinery outages, have been soaring back toward $4 a gallon — without Steinberg’s tax increase.