Fossil fuel companies face an existential threat in California as the state shifts to a carbon neutral future.
SACRAMENTO, Calif. – Oil companies in California are planning an all-out fight against Gov. Gavin Newsom over his proposal to punish them for what he calls “unconscionable” profits. But that may be the least of the industry’s worries.
Fossil fuel companies face an existential threat in California as the state shifts to a carbon neutral future: Lawmakers have set a deadline to ban the sale of new gasoline-powered vehicles. State and local officials have restricted, or in some cases banned, new oil wells. And some cities are even banning gas stations and non-electric lawnmowers.
These and other measures suggest a grim outlook in the country’s largest car market for an industry more closely tied to the state’s development than the Gold Rush.
“It’s clearly redefining the industry and its role,” Jamie Court, president of Consumer Watchdog, said of efforts by lawmakers. “And it’s consistent with phasing out the fossil fuel industry.”
The industry isn’t giving up without a fight. Oil companies and their lobbyists are working to head off Newsom’s latest proposal, which would penalize companies if they again raise prices to the record-high levels of the fall, when California gas cleared $6 per gallon.
The state’s prices at the pump climbed to nearly $3 above the national average in October, at $6.42 per gallon, while oil companies nearly doubled their year-over-year profits.
If lawmakers pass some version of Newsom’s proposal, it will be a first-in-the-nation move with big implications for other states and the potential to accelerate or slow clean-energy transitions. California would also join what is effectively a massive experiment in energy price controls unfolding in Europe.
“They’re taking advantage of you because they can,” Newsom said of the oil companies at a Dec. 5 news conference. “Because no one has stood up to them. Why? Because they have unlimited funds, unlimited capacity to manipulate and mislead, lie to people, lie to people. And that’s what I expect they’ll do once again, in this effort.”
His proposal, still lacking in detail, would take a portion of oil refiners’ profits above a to-be-determined threshold and distribute the money to consumers. The state legislature is expected to consider the plan in January.
But industry representatives and analysts say the issue is not as simple as Newsom, who directed regulators to ban sales of new gas-powered vehicles by 2035, makes it out to be.
“He wants to regulate and tell us to maintain our facilities, but he’s also saying: ‘Look, we’re not going to sell gasoline-powered cars by 2035,’ and shortly thereafter he wants us out of business,” said Western States Petroleum Association spokesperson Kevin Slagle. “So, at some point, refiners will have to look at California and decide whether it makes sense to be there or not. And that starts to become a real problem for consumers and others who need fuels.”
California is taking more aggressive steps than any other state to address climate change by reducing the use of fossil fuels. Its air quality regulation agency on Thursday approved a plan to achieve carbon neutrality by 2045 in part by reducing fossil fuel demand by about 90 percent.
Whether the state can meet these goals is an open question. Gas use has been declining in recent years as more people buy electric vehicles, work from home or commute less because of the pandemic. But prices at the pump are often the highest in the nation — and politicians felt the sting of voter anger this past summer and fall.
Trying to regulate fuel prices turned out to be ineffective in the past, notably under Richard Nixon and Jimmy Carter, when price caps led to supply shortages and long lines at stations.
“They’re going to spend all their time trying to figure out how to manage the margin instead of spending the time and resources competing with one another,” said David Hackett, chairman of the board for Irvine-based consulting firm Stillwater Associates.
Conflict between Sacramento lawmakers and the oil and gas industry isn’t new.
State lawmakers have weighed oil against the environment since at least the 1920s, when they started taxing production to fund public parks and shorelines, mollifying beachgoers who objected to the oil derricks that crowded Southern California’s shores, said Paul Sabin, a Yale University professor and author of “Crude Politics, The California Oil Market, 1900-1940.”
Newsom’s proposal targets 11 oil refineries that still operate in the state, the oldest of which dates to 1896.
“People don’t necessarily think about California as a Western state that is a place of resource extraction, but Southern California was really an oil town in a lot of ways,” Sabin said.
Oil pumps still dot Los Angeles, but three days before Newsom announced his proposal on Dec. 5, the Los Angeles City Council banned new oil wells and ordered an end to production in the city within 20 years. The council’s ban followed a state prohibition on new wells within 3,200 feet of schools, parks and homes.
