In a dramatic turnaround amid California’s escalating energy crunch, state legislators are reportedly negotiating to hand over hundreds of millions of dollars to Valero Energy Corp. to prevent the shutdown of its Benicia refinery in the San Francisco Bay Area.
The facility, which processes 145,000 barrels per day, was slated to cease operations by April 2026, but the proposed bailout aims to cover hefty maintenance costs and keep the plant humming—at least for now. This move comes as the Golden State grapples with a wave of refinery closures that threaten to spike prices for gasoline, diesel, and jet fuel, exposing the contradictions in Governor Gavin Newsom’s aggressive push toward net-zero energy goals.The Benicia refinery’s potential closure isn’t just a local headache; it’s a $10 million budget blow to the city of Benicia itself, as Mayor Steve Young has warned.
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Valero cited soaring maintenance expenses and regulatory pressures as key factors driving the decision, but critics point to a deeper issue: California’s punishing anti-oil and gas policies that have made refining unprofitable. With two major refineries—Valero’s Benicia plant and Phillips 66’s 139,000-barrel-per-day Los Angeles facility—set to shutter by late 2025 and early 2026, the state stands to lose about 17% of its refining capacity in just over a year.
That’s a recipe for supply shortages and skyrocketing fuel costs on the West Coast.
Newsom’s Net-Zero Ambitions: A Green Dream Turning Sour
Governor Newsom has long positioned California as a global leader in the fight against climate change, championing policies that aggressively target fossil fuels in pursuit of net-zero emissions. In 2021, he announced a statewide fracking ban, and his administration has spearheaded lawsuits holding major oil companies accountable for climate damages.
More recently, Newsom signed an executive order in June 2025, doubling down on the state’s commitment to clean cars and trucks, accelerating the phase-out of gas-powered vehicles.
The state’s broader net-zero roadmap includes an 85% reduction in greenhouse gas emissions by 2045, a 94% cut in oil consumption, and bans on new offshore oil and gas leases as well as well stimulation treatments.
These measures, while lauded by environmental groups, have squeezed the oil and gas sector hard. California’s pursuit of 100% carbon-free electricity has been criticized for widening the wealth gap, as the high costs of renewables and grid upgrades disproportionately burden lower-income households.
And despite the green rhetoric, the state remains heavily reliant on oil and gas, producing about 400,000 barrels per day while importing the rest—a vulnerability that’s now biting back as federal hurdles slow wind and solar projects.
Newsom’s policies have directly contributed to the refinery exodus. Phillips 66 began winding down its LA-area operations in late August 2025, with full closure expected by year’s end, citing regulatory and economic pressures.
Valero followed with its Benicia announcement in April, slapped with an $82 million fine for air pollution violations that some say was the final straw.
Together, these closures represent about 20% of California’s crude oil processing capacity, leaving just eight major refineries operational—three in the Bay Area and five in the south.
Lip Service or Real Pivot? Newsom’s Sudden Embrace of Big Oil
Faced with the specter of fuel shortages, Newsom has struck a more conciliatory tone toward the industry he once demonized. In April 2025, he urged the California Energy Commission (CEC) to “redouble” efforts to collaborate with refiners, ensuring they have the support needed to maintain operations.
By August, amid the Phillips 66 and Valero announcements, Newsom unveiled proposals to keep refineries afloat, including delaying a controversial refinery profit cap for five years—a move oil companies had lobbied hard for.
“We can’t afford to lose any more refining capacity,” Newsom stated last month, acknowledging that “refineries all across the globe are struggling” but emphasizing California’s unique vulnerabilities.
His administration has even stepped in to broker deals, seeking buyers for the Valero plant and floating incentives to boost in-state drilling.
This short-term “embrace of fossil fuels” is framed as a pragmatic necessity to avert gasoline shortages, with state officials postponing stricter regulations to prioritize supply stability.
Skeptics, however, call it lip service. Senate Republicans have accused Newsom of complicity in the closures through his silence on concrete plans to retain jobs and prevent further exits.
Environmental advocates urge him to hold oil giants accountable rather than bailing them out, while industry groups like the Western States Petroleum Association blast his past ads claiming he’d “ban gas cars and shut down oil production.”
The Valero talks, shrouded in secrecy, underscore the tension: Is this a genuine policy shift, or a desperate patch to mask the fallout from years of anti-oil zeal?
The Price Tag: Skyrocketing Fuel Costs on the Horizon
The real pain point for Californians? Their wallets. The state already pays a premium at the pump—averaging $1.47 more per gallon than the national average in 2025—thanks to a unique blend of low-carbon fuel standards, high taxes, and supply constraints.
With refinery capacity shrinking, experts warn of even steeper hikes. The U.S. Energy Information Administration (EIA) projects that the closures could drive up West Coast gasoline prices significantly, as California becomes more dependent on costly imports from Asia and the Rockies.
Diesel faces similar turbulence: Early 2025 saw the diesel spread (the price gap over national averages) peak at $0.80 per gallon, fueled by refinery outages and policy uncertainty.
Valero’s Benicia shutdown alone could slash West Coast production by 9% for gasoline, 3% for jet fuel, and add pressure on diesel supplies, potentially pushing prices toward $8 per gallon for gas if demand doesn’t drop fast enough.
Jet fuel, critical for California’s aviation hubs, could see volatility too, exacerbating logistics costs for goods and travel. Analyses from groups like Stillwater Associates and the Union of Concerned Scientists highlight how these closures outpace the state’s declining gasoline demand (projected to fall 40% over 25 years due to EVs), leading to tighter markets and import reliance.
A 2024 law signed by Newsom mandating minimum fuel stockpiles at refineries was meant to buffer against this, but with plants closing, it’s like locking the barn after the horses have bolted.
A Contradictory Path Forward
California’s refinery saga is a stark reminder of the pitfalls in rushing toward net-zero without a robust transition plan. Newsom’s green policies have accelerated the shift away from fossil fuels, but the resulting closures risk economic chaos—job losses, higher trucking and shipping costs, and pain for everyday drivers. The Valero bailout talks may buy time, but they don’t resolve the underlying mismatch between ambitious climate targets and energy reality.
As legislators race toward a deal before the end of the year, one thing is clear: California’s energy future hangs in the balance. Will the state double down on subsidies for Big Oil, or find a way to thread the needle between environmental goals and affordable fuel? For now, drivers in the Golden State are bracing for the bill.
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