This nonpartisan policy brief, written by an ACE fellow, is republished by The Fulcrum as part of our partnership with the Alliance for Civic Engagement and our NextGen initiative — elevating student voices, strengthening civic education, and helping readers better understand democracy and public policy.

Key Takeaways

• The state gas tax is a key source of funding for transportation maintenance and other projects.
• Uniquely high gas prices in California have fueled disagreements over the state’s environmental regulations and recent refinery closures.
• With the growing popularity of electric and fuel-efficient vehicles, gas tax revenues have decreased, raising questions about the future of California’s transportation funding.
• Some have proposed replacing the gas tax with a road usage tax based on miles driven.

What is the Gas Tax?

Transit funding in California comes from a variety of sources, including the gas tax. In fact, most state funding comes from the state tax on gasoline. The revenue is distributed to support the maintenance of city streets, bridges, state highways, and more.

In 2017, former Governor Jerry Brown signed the Road Repair and Accountability Act (Senate Bill 1) into law. This legislation marked a significant investment in California’s transportation infrastructure, and was the first time the state’s gas tax was increased since 1994.

Overview of the Gas Tax Debate

Although the state charges the tax to gasoline suppliers, this cost tends to get passed on to drivers through higher gas prices. Additionally, since the passage of Senate Bill 1, the state gas tax is set to increase annually with inflation. California’s tax on gasoline is the highest in the country — one of several factors contributing to the high prices California drivers typically pay at the pump.

(Image Source: U.S. Energy Information Administration)

Gasoline prices in California consistently exceed the national average. Along with the gas tax, compliance with the state’s environmental regulations adds costs for fuel suppliers, often leading to higher prices.

Despite the high prices, the amount of funding collected from the state gas tax has been substantially decreasing. Some research projections indicate that with increased electric vehicle use, the state may soon face a significant decline in gas tax revenue if the current revenue structure is not revised or replaced.

Pros and Cons of California’s Environmental Regulations

Many have urged policy changes to bring gas prices down. In 2025, the California Republican congressional delegation called for Governor Gavin Newsom to hold off on implementing new updates from the California Air Resources Board. These amendments would tighten some existing requirements under the Low Carbon Fuel Standard (LCFS), with “aims to accelerate the adoption of zero-emission infrastructure.” Many republicans opposed these changes out of concern that they would further strain suppliers and thus increase retail fuel prices.

Critics of California’s environmental policies also argue that these strict gas tax rules have led to refinery closures, creating a worsening gasoline supply crisis. Some economists have estimated that in 2026, the closures of two major refineries “will result in an additional $1.21 increase in gasoline prices, which could result in California gasoline prices being over $2.50 higher than in the rest of the country.”

However, proponents of the state’s regulations argue that the long-term benefits are significant, both environmentally and financially. For example, the LCFS has been described as an evidence-based effort to reduce greenhouse gas emissions and toxic air pollutants, improving air quality. Governor Newsom’s office has also stated that “in the long term, LCFS is estimated to reduce fuel costs for Californians per mile by 42% – translating to savings of over $20 billion in gasoline costs every year by 2045.”

A Mileage-Based Alternative?

With the rise in electric vehicle usage and the closures of several in-state refineries, recent conversations have turned to alternative methods of raising funds for transportation services instead of the gas tax. One of these proposals is a road usage fee, based on miles driven. The state has considered potential models of road charge systems for some time. In 2017, the Road Charge Pilot Program explored considerations like the complexity, feasibility, and functionality of road usage models. The study “confirmed the viability of many aspects of a user-based transportation revenue mechanism,” and the California State Transportation Agency has encouraged continued research.

Supporters argue that charging based on miles driven would increase fairness, as drivers of both gas and electric vehicles would contribute. Analysis has shown that a flat-rate road usage charge would help to reduce some inequities in the burden of transportation fees. For example, such a model would “generally shift the fuel tax burden from lower-income to higher-income households” according to researchers with the Mineta Transportation Institute.

Others have raised concerns about unintended side effects of a usage-based model. Currently, electric vehicle drivers in California pay additional registration fees to help make up for lost gas tax revenues. If a road usage charge was added, these drivers might face excessive costs, which could potentially disincentivize electric vehicle usage and its intended environmental benefits. Similarly, if usage fees were to be implemented in addition to the gas tax instead of replacing it, gas vehicle drivers would experience higher costs as well. Concerns have also been raised about the administrative burden of switching to a new program, and the potential for government overreach with the monitoring of drivers’ road usage.

Looking Forward

Ultimately, much of the discussion around a road usage charge can be considered preliminary. California lawmakers have not passed a mileage tax, despite some claims online. In March 2025, the Assembly and State Senate Transportation Committees held an informational hearing regarding declining gas tax revenues and potential paths forward. More recently, the State Assembly approved a measure for the California Transportation Commission to continue a long-term study of possible mileage-based models.

Frequently Asked Questions

What does the gas tax pay for?

• The gas tax is one of several sources of funding for transportation maintenance throughout the state, including upkeep of highways and bridges, transportation research, and more.

How does the gas tax affect gas prices?

• Federal and state taxes, environmental regulations, refining costs, and crude oil prices all play a role in retail gas prices. California’s state gas tax is uniquely high, making it one of several factors that contribute to higher prices at the pump.

How would a road usage charge work?

• Broadly, a road usage charge is a model in which drivers are charged a tax per mile driven, instead of per gallon of gas purchased. Researchers have explored several different technologies that could be used to implement a road usage charge in California.

Is California switching to a road charge model?

• At the time of writing, California has continued to support research on the road charge as a future alternative, but legislators have not passed a mileage tax into law.