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Gas price rise could impact wallet on multiple levels in new year

Economist says sting may not be as bad as it seems
By: Philip Wood, of the Auburn Journal
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Gas prices in California could spike between 13 to 20 cents a gallon early next year, sparking fears of possible inflation due to legal mandates if pending legislation doesn’t curb it first.

The Global Warming Solutions Act, passed in 2006 and signed by then Gov. Arnold Schwarzenegger, requires greenhouse emissions to be at the levels they were in 1990 by 2020 and implements a cap-and-trade emissions control system where oil refineries will have to pay in order to release greenhouse pollution into the air to be in compliance.

Gasoline manufacturers would pass their cost on, which could easily send prices well north of $4 a gallon.

The Legislative Analyst’s Office puts the price hike between 13 and 20 cents per gallon in January and indicated it could rise 50 cents or more by 2020, while the California Air Resources Board said by the same year could raise by 70 cents per gallon.

Assemblyman Henry Perea, D-Fresno, authored Assembly Bill 69 to address the issue and knock compliance with the 2006 law’s timeline back three years.

“The cap-and-trade system should not be used to raise billions of dollars in new state funds at the expense of consumers who are struggling to get back on their feet after the recession,” Perea said in a statement. “In some areas of the state… (people) need to drive long distances and they will be disproportionately impacted by rising gas prices.”

Besides feeling the sting at the pump, business owners say consumers might also feel it when they go to purchase goods at the retail level. The price increase may cause them to up their prices since the cost of delivery would rise.

“I don’t think the consumer has any idea what it takes to get from point A to point B,” said local farmer Karin Sinclair of Sinclair Family Farm in Penryn in reference to the possible gas price hike.

She said she may have to increase her prices if costs go up as she has to deliver her food to the marketplace. She said most farmers don’t make large profits, and people already think they charge more than they should.

Bob Rush, of Rushway Inc. in Newcastle that transports heavy and oversized equipment, said his company spends up to $500,000 a year on fuel. He said that about 10 years ago when the price of fuel noticeably started to rise, his company implemented a fuel surcharge. His predicament is indicative of the trucking industry.

“If the price of gasoline goes up, it will get passed along,” he said. “It’s common sense that if fuel goes up, the cost (of delivery) goes up and costs go up across the board.”

But the increase in price may not be as painful as people first think. Economics professor Elliott Parker of the University of Nevada, Reno said a 20 cent rise in the cost of gas would raise prices by about 5 percent and the ripple effect on food by no more than 2 percent.

“Gas and food are normally variable parts of the consumer’s budget, and the effect of an increase in gas and food prices is likely to have very little effect on ‘core’ inflation,” Parker wrote in an email to the Journal.

The average Californian uses about 400 gallons of gasoline a year, and if gas is at $3.85 per gallon, then a 20 cent increase would mean $100 more per year, Parker said.

Regular gas in the greater Sacramento area averaged $3.83 a gallon Friday compared to the national average of $3.46 per gallon, according to AAA.

If gas were to increase as much as 70 cents more a gallon by 2020, the increase between now and then would be gradual, Parker said, and people would have time to adjust, and he speculated more fuel efficient vehicles would come onto the market with technological advances.

The bill sits in a state senate committee awaiting action if it doesn’t stall, which some speculate that it may. If passed, it will go to Gov. Jerry Brown for his consideration.