California gas prices are already the highest in the country, and with upcoming refinery closures, these costs are expected to increase further. To curb these costs, the state passed new legislation in October 2025 allowing the use of gasoline with up to 15% ethanol, known as E15. But research by UC Berkeley Professor Aaron Smith finds that despite this recent policy change, California drivers are unlikely to see much relief at the pump.
While ethanol has been used as a fuel source in the United States since the 1920s, its regular use in gasoline only became common after the Renewable Fuel Standard (RFS) mandates in the mid-2000s. This federal legislation required that increasing amounts of renewable fuels (e.g., biofuels such as ethanol) be blended into transportation fuels to reduce greenhouse gas emissions and dependence on foreign oil. However, because of EPA blending requirements to reduce summer air pollution and a special exemption Congress made for E10 (10% ethanol blend gasoline), E10 has been the only blend commonly used in California.
Governor Newsom signed new legislation on October 2, 2025, which could change this, stating, “Thanks to our work with the legislature, we have averted billions of dollars in higher costs at the pump by avoiding the kinds of severe gasoline price spikes we saw a few years ago." But will these changes really provide substantial savings for California drivers?
The new legislation will allow gas stations to sell E15 gasoline (a blend of 15% ethanol and 85% petroleum) all year round. But precisely how this will be implemented is still unknown. The California Air Resources Board (CARB) could either redefine standard gasoline to include E15 or develop special specifications for it as an alternative fuel—with department staff suggesting the latter is more likely. This second route would require retailers to install new infrastructure and labeling that would reduce the likelihood of widespread E15 adoption.
Proponents of ethanol point to recent studies and surveys suggesting that E15 could be $0.20 to $0.25 less per gallon than E10. But Smith, the Gordon Rausser Distinguished Chair in the Department of Agricultural & Resource Economics, noted that, “even if the extra ethanol in E15 were free to produce, the cost of production would drop by only $0.13.” Yet, when accounting for ethanol’s lower energy content, it is slightly more costly to produce than petroleum gasoline. Smith notes that this implies that the price of E15 is lower due to lower demand, and therefore, even if it were to be widely adopted, the price gap between the two would lessen considerably, making widespread consumer adoption less likely as well.
His research shows that this new legislation is unlikely to lead to a significant increase in E15 adoption by retailers or consumers. But, even if use of E15 became widespread, it is unlikely to save billions at the pump, as those who advocated for the new law had hoped.
To learn more about the history of ethanol in gasoline and how these changes to E15 policy in the state might affect California drivers, read the full article by Aaron Smith: “California Now Allows More Ethanol in Gasoline: Is This Going to Save Drivers Money?” ARE Update 29(2): 9–12. UC Giannini Foundation of Agricultural Economics, online at: https://giannini.ucop.edu/filer/file/1767890520/21558/.
About ARE Update
ARE Update is a bimonthly magazine published by the Giannini Foundation of Agricultural Economics to educate policymakers and agribusiness professionals about new research or analysis of important topics in agricultural and resource economics. Articles are written by Giannini Foundation members, including University of California faculty and Cooperative Extension specialists in agricultural and resource economics, and university graduate students. Learn more about the Giannini Foundation and its publications at https://giannini.ucop.edu/
