Gavin Newsom’s gas price gambit just might work
SACRAMENTO, California — California Gov. Gavin Newsom is trying to get his state off of oil and gas — but the path is littered with political tripwires.
His plan to manage gas prices has drawn attacks from the National Republican Congressional Committee, criticism from neighboring governors and pushback from Democratic moderates at home.
The state is transitioning quickly to electric vehicles as it pursues a 2035 deadline to phase out sales of new gas cars — but combustion engines will be on the roads for decades to come, and Newsom is acutely sensitive to prices at the pump that cleared $6 per gallon each of the last two Septembers and are once again climbing.
His new plan to prevent price spikes by requiring oil refineries to keep more gasoline on hand is alarming neighboring governors. Arizona Gov. Katie Hobbs, a Democrat whose state gets nearly half of its gas from California, teamed up with Nevada Gov. Joe Lombardo, a Republican, last week to tell Newsom in a public letter that it could drive up prices. The exchange got the attention of a Newsom nemesis, The Wall Street Journal editorial board, giving it more election-season oxygen.
But lawmakers whom Newsom is calling back to Sacramento for the second special session on gas prices in as many years have some sympathy for their neighbors.
“I am mindful of the concerns that she raised in that letter,” Assemblymember Cottie Petrie-Norris said of Hobbs. The Orange County Democrat is chairing the committee that begins hearings on this issue Wednesday. “It’s absolutely critical we get this right.”
Newsom is shrugging off the distress calls.
“Your letter reflects the oil industry’s talking points rather than the facts,” he responded to Hobbs and Lombardo on Friday.
Newsom is trying to get a handle on the wild gasoline price spikes that have state and national Democrats on the defensive, but also attempting something more profound: To orchestrate an energy transition in which oil and gas supplies that power the world’s fifth-largest economy glide gently down in concert with declining demand.
“Californians are rapidly moving beyond fossil fuels to power their vehicles, but California is still the world’s fourth-largest gasoline market,” Newsom spokesperson Daniel Villasenor said in a statement. “We need to make sure that supplies stay high enough to meet demand even as demand for gasoline goes down in California.”
More than a quarter of new car sales in California are now electric, and demand for gas is down by about 2 billion gallons per year compared with before the pandemic. But there are still 31 million gas-powered vehicles on the roads, and the state expects gas cars to stick around for at least another couple decades even as California seeks to meet its goal of a carbon-neutral economy by 2045.
So Newsom is talking about gas prices. But behind the price at the pump lies a vast array of policies aimed at weaning Californians off petroleum — some of which increase the same gas prices he’s villainizing.
Energy affordability has consumed Newsom and lawmakers for the better part of two years. The first special legislative session Newsom called after gas prices hit $6.44 per gallon, in 2022, resulted in new state power to collect market and operations data and to cap refiners’ profits.
“The state of California is for the first time ever actually addressing the issue of why,” the governor said last week. “Why are gas prices so much higher here than other parts of the country? We’ve been lied to by the oil companies and everyone they buy off.”
His administration says that analysis produced a simple conclusion: Oil companies have been allowing their reserves to dwindle each September and then performing planned and unplanned maintenance at refineries, reducing supplies and driving up prices.
In addition to his gas storage proposal, Newsom urged the state Energy Commission to impose a profit cap on refiners and penalize them if they earn above the cap — an idea that faces heavy industry resistance.
“Price spikes are profit spikes,” said Newsom.
The industry says that’s not true, and they accuse Newsom of making them a scapegoat to deflect attention from the role of California’s policies in the state’s gas prices, which are usually the highest in the nation even when they’re not spiking.
“We are undertaking the largest transformation of the energy system we’ve ever attempted,” said Catherine Reheis-Boyd, president of the Western States Petroleum Association, a trade group that represents a dozen oil companies across California, Arizona, Nevada, Oregon and Washington. “All of these policies, as I step back from them, reduce investment, reduce supply and increase price.”
State taxes and fees add about $1.25 to the price of every gallon of gas sold in California. Reheis-Boyd said numerous additional policy-driven factors are contributing to climbing prices.
In-state oil production has been declining at an accelerating rate under Newsom, dropping by 15 percent last year, which requires the state to import more crude, according to an analysisReheis-Boyd’s organization commissioned from consultant Turner, Mason and Co.
A number of factors, including a lawsuit blocking local drilling approvals in oil-rich Kern County, are to blame. But Newsom has put his foot on oil extraction in a way his predecessor, former Gov. Jerry Brown, did not. His administration has approved only a trickle of drilling permits, he’s signed legislation banning new drilling within 3,200 feet of occupied buildings and has halted fracking.
The state’s landmark emissions-reduction tool, the low-carbon fuel standard, has nudged two refineries to switch from gasoline to biofuels in the last five years, leaving just nine refineries owned by five companies to produce the state’s unique blend of low-polluting fuel — down from 32 in 1990.
On top of that, Reheis-Boyd said, the California Air Resources Board is imposing new restrictions Jan. 1 that will require oil tankers to sharply reduce emissions at California ports, either by plugging in for power or capturing carbon emissions. She said neither the international fleets nor the ports are equipped to do either of those things. The alternative is for oil companies to pay fees for their emissions, which could get passed to consumers.
That all adds up to a transition that the industry says isn’t looking very smooth. Republicans — and this week, even Central Valley Democratic U.S. Rep. Josh Harder — are instead looking to those policy levers for relief. Harder has proposed cutting or pausing the state’s 60-cent gas tax, while California Republican Assemblymember Joe Patterson has introduced a proposal to hold off on a low-carbon fuel standard update that was once estimated to come with a 47-cent-per-gallon cost.
Newsom, who has sued Chevron and other major companies for climate damages over their suppression of climate change science, dismisses the industry’s warnings as “lies” and accuses people who take them seriously of giving the industry too much credit.
It’s not so black and white for other lawmakers, including members of the state Assembly’s Democratic supermajority who resisted passing Newsom’s storage proposals with only a few days to evaluate them at the end of the Legislature’s regular session last month.
“While I think it’s important to take those apocalyptic warnings about price spikes, gas lines, total chaos, etc, with a grain of salt, it’s vital that we are aware of potential unintended consequences so we can plan for those,” said Petrie-Norris.
It won’t be easy for the seventh-largest oil-producing state, which is home to an energy-intensive, nation-leading manufacturing sector, a globally connected agricultural industry and enormous ports in addition to the gas-powered cars that still crowd its roads.
Among other challenges, the state Energy Commission warned in a report last month that if the state drops gas prices too low on a permanent basis, it’ll encourage reliance on gas cars.
“Policies that keep average prices low may result in more driving, and hence, more pollution. This is an important trade-off for considering longer term issues,” states the report.
If successful, Newsom’s oil policies — and politics — could become models for the world. If they fail, they’ll provide fresh fuel for critics salivating at the gates.
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