California's boutique gasoline blend—CARBOB—was designed decades ago to fight the state's severe smog crisis, and it worked. But the system built around that fuel is now breaking down. Two major refinery closures have eliminated 20% of the state's refining capacity in under a year. Prices at the pump have surged past $5.34 per gallon while neighboring states pay $1.00 to $1.80 less for gasoline refined from the same crude oil. Analysts warn of $7–8 gas by summer. This report examines how California got here, why the current system is failing, and evaluates four alternatives—from modest tweaks to a fundamental rethinking of the state's fuel policy.

California faces an unprecedented convergence of pressures on fuel prices in 2026: two major refinery closures removing 18–21% of in-state refining capacity, escalating regulatory costs from CARB's Cap-and-Invest and LCFS programs, and the ongoing U.S.–Iran conflict that has driven crude oil above $110 per barrel. The state's average regular gasoline price stood at $5.16 as of March 8, 2026 — already $1.66 above the national average — and projections range from roughly $5.50 to $8.44 per gallon by late 2026.

The impending closures of California's Phillips 66 Los Angeles and Valero Benicia refineries threaten to create a daily gasoline shortfall exceeding 6 million gallons — and cut 45% of Northern California’s asphalt production. Arizona and Nevada will also feel the pinch.