New California gas price law another defeat for oil industry

Gasoline prices are displayed at a gas station in Sacramento, Calif., on Sept. 30, 2022. (Rich Pedroncelli / AP)

SACRAMENTO, Calif. -

It was just a few weeks ago that California Gov. Gavin Newsom called the oil industry the second most powerful force on earth, trailing only Mother Nature in its ability to bend the elements -- both physical and political -- to its will.

Yet on Tuesday, Newsom signed a new law that gives state regulators the power to penalize oil companies for making too much money, the first of its kind in the country. It's the type of legislation the oil industry might have crushed in the past. But on Monday, the bill cleared the state Assembly with only one Democrat voting against it.

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"We proved we could finally beat big oil," Newsom said Tuesday after signing the bill.

The bill is the latest in a string of defeats for the oil industry in California, a state many don't think of as a fossil fuel powerhouse. But for decades, California was one of the leading oil producers in the United States with a bustling industry that was a key part of the state's economy. The state is now the nation's seventh-largest oil producer, according to federal data.

Oil production has been steadily declining since the late 1980s from a combination of exhausting supplies and the state's changing policy priorities. A state law requires California to be carbon neutral by 2045, meaning the state would remove as many carbon emissions from the atmosphere as it emits. The state's plan to do so would reduce demand for liquid petroleum by 94% by 2045.

State regulators have banned the sale of most new gas-powered cars in California by 2035. And last year, the state Legislature approved a bill limiting where new oil wells can be drilled, providing buffer zones around homes, schools and other sensitive sites.

The oil industry doesn't mind a David vs. Goliath comparison "as long as you think we're David and not Goliath," Kevin Slagle, spokesperson for the Western States Petroleum Association, said about the industry's reputation at the state Capitol. "Just look at the results the last couple of years on legislation."

The association, though, spent US$11.7 million lobbying lawmakers in the 2021-2022 legislative session, far more than any other single group. Chevron followed behind it, spending US$8.6 million, according to state campaign finance filings. The next closest single spender was the California Teachers Association, at US$7.1 million.

Likewise, the industry spent millions on campaign contributions in the 2022 election, supporting both Democrats and Republicans. Nearly one-third of all 120 seats in the Legislature are newly elected members.

Those donations did not always translate to favourable votes. New Assemblymember Esmerelda Soria, a Democrat who represents parts of the Central Valley, was the top beneficiary of money from a Western States Petroleum Association-affiliated committee. Soria voted Monday to support the legislation despite industry opposition.

The only Democrat to vote against the potential oil profits penalty was Assemblymember Jasmeet Bains, whose district includes Kern County, home of the state's oil industry. Her vote appeared to irk the Newsom administration.

Bains, a family medicine and addiction doctor who was first elected in November, tweeted a picture of the vote, saying: "Stand alone if you must, but always stand for truth."

Dana Williamson, Newsom's chief of staff, replied: "Alone and confused you shall likely remain."

Bains said she voted against the bill because during the height of the gasoline price spike last summer, the Newsom administration and legislative leaders refused to suspend the state's gas tax. They argued oil companies would not pass along the savings to drivers.

"What's to stop them from passing on the cost of this new tax with high prices at the pump?" Bains said. "That inconsistency is even more frustrating."

Though the industry couldn't stop the legislation, its presence could be felt in the final version, said Chris Micheli, a veteran California lobbyist who represents business clients but was not involved in the oil profits legislation. Newsom initially called for the Legislature to pass a new tax on oil company profits. Then he asked lawmakers to instead impose a penalty if oil company profits surpassed a certain threshold.

Finally, Newsom and lawmakers agreed to let the California Energy Commission decide, punting the decision to a five-person panel appointed by Newsom with the consent of the state Senate. The bill also creates a new state agency with the power to monitor the petroleum markets, including requiring oil companies to disclose lots of data about their pricing.

"The fact it took them three different substantive proposals to find something that would actually pass the Legislature I think goes to show the continued power and influence of the oil industry in this state," Micheli said.

Next year, the oil industry will be looking to exert its influence in another arena -- public opinion. The industry is challenging a new state law that bans drilling new oil wells nearby homes, schools and other sensitive areas. Voters will decide in 2024 whether to uphold the law.

"The partisan numbers of the two houses of the Legislature have dramatically changed," Micheli said, referring to Democrats now having total control over state government. "The broader business community is going to have to go to the voters on some issues of public policy."