Despite being an oil-rich state and ranking third in refining capacity behind Louisiana and Texas, California has surpassed even Hawaii, which imports practically everything, as the state with the highest average cost of a gallon of gas at $4.64 per gallon, and comes in third for the highest cost of electricity rates per kilowatt-hour (kWh) at $32.41 per kWh. Most of California’s problems, including and especially high energy costs, are self-imposed and make the state a prime case study of how misguided, idealistic policy can ruin even the most resource-abundant regions.
1970s, The Beginning
California’s alternative energy push dates back to the 1970s. This decade was wrought with multiple conflicts in the Middle East, including the Yom Kippur War of 1973, the Arab Oil Embargo of 1973-1974, and the Iranian Islamic Revolution of 1979. In particular, the Arab Oil Embargo put significant pressure on American consumers due to America’s heavy reliance on Middle Eastern oil. The supply shortages brought on by the embargo and the accompanying price controls occurred only a few years after the Santa Barbara oil spill of 1969, which, despite the majority of the cleanup being completed in 45 days, had soured public opinion of oil operations in California. This event spurred the beginnings of the environmental movement in California, and the compounded supply shortages caused by the Arab embargo pushed legislators even further toward forcing energy alternatives, leading directly to the creation of the California Energy Commission (CEC).
The Warren-Alquist State Energy Resources and Conservation Act of 1974, signed into law by Governor Ronald Reagan, established the CEC, which began operations in 1975. Born out of the chaos of the oil supply chain challenges, the CEC was tasked with “reducing energy costs, curtailing greenhouse gas emissions, and ensuring a safe, resilient, and reliable supply of energy.” Ironically, the most reliable source of energy, both then and now, in California, is conventional fuels, specifically, the plentiful in-state oil and natural gas reserves, which continue to be politically vilified and sidelined by renewable energy.
The end of the decade saw the implementation of the Public Utilities Regulatory Policies Act (PURPA) of 1978, which has faced both praise and criticism. PURPA is federal legislation that was implemented — once again, out of concern for oil supply chain challenges from foreign sources in the Middle East — to encourage the development of renewable energy, reduce reliance on conventional fuels, and promote energy diversity. Instead of encouraging a solution developed through free-market competition to demonstrate the potential of renewable energy to both surpass and replace conventional fuels fully, the government initiative has turned into decades of subsidization in the form of tax credits and mandatory purchase rates from qualifying facilities (QFs) — defined by law as either a small power producer or cogenerator (their primary energy source must be renewable).
Supporters argue that it helped create the opportunity for developing renewable energy at scale and established and expanded the foundation for energy security. However, because of subsidization, interconnection challenges, and regulatory favoritism, PURPA encouraged rent-seeking rather than profit-seeking. Over time, renewable energy providers are now established enough, through government subsidization, to compete without mandatory purchase obligations. In 2020, the Federal Energy Regulatory Commission (FERC) took a step to address the new market reality and the concerns from utility providers by giving states a greater level of flexibility in how they implement the law, with a particular focus on setting the mandatory purchase rates. These changes, while welcomed by critics of PURPA, led many renewable energy groups to protest, arguing that it would hinder their ability to develop further, highlighting the question of whether or not renewable energy could survive and grow without government subsidies and mandates.
2000s to Today
In 2002, California enacted SB 1078, officially creating the Renewable Portfolio Standard (RPS), which set an initial requirement that, by 2017, 20% of all retail electricity sales be serviced by renewable energy sources. This legislation was instrumental in laying the groundwork for both the future expansion of the RPS as well as other green mandate initiatives. For example, as part of the renewable energy push, the California Solar Initiative was launched in 2006 as part of SB 1, providing financial subsidies for the installation of solar panels, especially in residential areas. This government manipulation of the market led to a massive increase in solar capacity, but came with a high cost and posed an unfair financial burden to non-solar users who were not able to afford them. Additionally, the following year, Assembly Bill 118, 2007, created the Clean Transportation Program, formerly the Alternative and Renewable Fuel and Vehicle Technology Program, as a means to fund the creation and market introduction of alternative fuels, other than gasoline, and electric vehicles (EVs). Assembly Bill 118 artificially created more support for renewable energy by promoting the electrification of transportation and by directly funding projects such as the California Electric Vehicle Infrastructure Project (CALeVIP), which sought to, but has ultimately failed, to create an interconnected network of EV charging stations to compete directly with the scale of gas stations.
In 2015, California continued its green energy crusade with the passage of Assembly Bill 802, which ultimately allowed utilities to offer monetary incentives for implementing what was argued to be energy efficiency improvements. The general goal was to further the transition to renewables, and its implementation reduced energy demand and enabled a higher proportion of the remaining electricity demand to come from renewables; such a reduction also inevitably reduces economic growth, and was another clear example of government interference and market manipulation. 2015 also saw the passage of SB 350, the Clean Energy and Pollution Reduction Act, which established new renewable energy goals and even more aggressive greenhouse gas reduction targets. SB 350 also increased the RPS requirement to 50% by 2030, and it was later increased to 60% in 2018 with the passage of SB 100, with 2030 still being the target year. However, SB 100 was not just another RPS standard increase; it also required that all of California’s electricity be sourced by carbon-free resources by 2045. The objective of California’s RPS is a classic example of government market intervention and, therefore, manipulation. By requiring a certain percentage of electricity to be sourced from renewables, Sacramento has taken away a significant amount of choice from Californians.
In 2006, during the passage and periodic expansion of RPS, Sacramento passed the California Global Warming Solutions Act, AB 32, which required that greenhouse gas (GHG) emissions return to the levels of the 1990s no later than 2020 — this would have been a 15% decrease from the early 2000s levels. AB 32 was a prime example of government market manipulation, given how the legislation gave blatant preferential treatment to companies focused on renewable energy, even though they, too, were and are guilty of carbon emissions. Furthermore, the outcome of this piece of legislation, and those of a similar nature, inevitably resulted in higher costs for utility companies, which were passed down to the consumer in the form of higher prices. For this reason, in 2010, Proposition 23 was introduced in order to suspend the implementation of AB 32 until unemployment in the state was consistently below 5.5% for four quarters. Many of California’s energy policies follow a trend of focusing on lowering GHG, supported by the argument that adopting an entirely renewable energy economy would be the way to achieve the goal of both lowering GHG and fighting climate change. This rhetoric has led to the current self-inflicted energy crisis in California.
Since 2019, Governor Gavin Newsom has supported and signed into law numerous pieces of legislation that have taken the renewable push and forced displacement of conventional fuels even further. In 2020, Newsom signed an executive order that all new vehicle sales in the state were to be zero-carbon emission by 2035. By doing so, Newsom effectively eliminated all market choice for automobiles in California, allowing only EVs based on a flawed understanding of emissions; if EVs were a perfect or superior alternative to internal combustion engines, then the market would respond differently. Furthermore, what was clearly not taken into account in these directives was that California lacks the critical infrastructure and grid capacity to sustain an entirely electric vehicle consumer base.
The only way to expand EV capacity has been through market manipulation and government subsidization, both of which have severely increased the cost of living in California. Fortunately, much of these EV mandates were reversed on June 12th, 2025, when President Trump signed a series of resolutions that ended California’s plans to mandate that all new vehicles in the state sold beginning in 2035 be net-zero, rolled back Sacramento’s low-nitrogen oxide regulations for heavy duty-trucks, and rescinded the 2023 EPA waiver that at the time President Biden supported, allowing for California to enforce even stricter vehicle emissions standards then required.
Conclusion
Since the 1970s, California has incrementally expanded its mandate for renewable energy while ousting conventional fuels through both political rhetoric and unfavorable policies. By doing so, California has manipulated the market to favor renewable energy, causing prices to slowly rise over time to the point where the state now boasts some of the highest electricity and gas prices in the country. California’s history of progressive legislation favoring renewable energy is a clear example of the risks of government market intervention in determining winners and losers in business. Had renewable energy been required to compete on equal terms with conventional fuels, the free market would have responded accordingly, with either outright rejection or specific feedback on the innovations needed to make the technology viable for consumers. Instead, Californians are left with high prices and a lack of true free market choice, which, given the state’s vast resources and potential for increased pipeline infrastructure, could have made oil and gas both more accessible and affordable for consumers. Californians deserve to have more choice in their energy consumption, but unfortunately, it may have to get worse before it gets better.
