California Governor Seeks Windfall Tax to Put Gas Money Back in People’s Pockets

October 19, 2022 by Kate Michael
California Governor Seeks Windfall Tax to Put Gas Money Back in People’s Pockets
(Photo by Luis Ramirez via UnSplash)

SACRAMENTO, Calif. — Late last month, California Gov. Gavin Newsom called for a windfall tax on oil companies that would be reverted back to California taxpayers. Such a tax is necessary, Newsom said, because they have “failed to provide an explanation for the unprecedented divergence between prices in California compared to the national average.”

In the last 10 days of September, gas prices in California rose by a record 84 cents per gallon.

With crude oil prices down, and no new state costs or regulations, Newsom and the California Energy Commission contends that such price increases are unjust since “planned and unplanned maintenance typically does not result in large increases like this,” and have demanded an immediate and comprehensive explanation from industry executives for the unusual gas price spike. 

No satisfactory explanation was received within CEC’s 10-day timeline, though refiners claim recent price hikes can be attributed to refinery maintenance issues and hurricane disruptions as well as state taxes.


Environmental and public interest groups are applauding Newsom’s request for a windfall tax, claiming in a recent letter that “Consumer Watchdog research shows that the ‘gouge gap’ between the average price per gallon at the pump in California and what consumers pay in the rest of the United States is approaching $3….It’s a consequence of five big oil refiners in California who make 97% of the gasoline and have intentionally restricted supply to artificially drive up prices. Thus, a windfall profit tax is sorely needed to bring California gas prices under control.”

At least 50 parties have signaled their support for the windfall tax, claiming such legislation is “a sensible and straightforward law to tax the unconscionable profits that refiners are reaping…because they are able to take advantage of hard-working consumers simply by gouging,” according to their letter.

In mid-September, Newsom signed the California Oil Refinery Cost Disclosure Act, SB1322, which provides the basis to assess an appropriate windfall profit tax.


Starting in January, California oil refiners will have to publish their actual crude oil costs and refining margins monthly.

While this information will inform future gains — and the CEC’s current request may speak to current ones — Newsom’s is not the first investigation into why California’s prices are higher than those of other states. 

No proof of collusion has been identified. On the other hand, the state does have a specific refining recipe intended to minimize emissions, as well as a high cost of doing business. 

Refiners have also suggested an unwillingness to invest in production upgrades given the state’s commitment to phasing out gasoline-powered vehicles. 

California gas prices at the pump are approaching $7 in some places — that’s $2.60 more per gallon than average prices in the rest of the U.S. — while in the second quarter of 2022, California’s five largest refiners — Chevron, Marathon, PBF Energy Phillips 66 and Valero — brought in $26 billion in profits. 


Kate can be reached at [email protected]

 

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