Gavin Newsom Raises Gas Prices Again

A new law and tighter rules may drive refiners out of California

WSJ editorial. 

"Is California Gov. Gavin Newsom trying to raise gasoline prices? It’s hard not to wonder after he signed legislation this week that does precisely that. Meantime, his climate regulators next month plan to raise prices even more.

“You’re seeing gas prices drop across the rest of the country, but spike in California,” Mr. Newsom declared on Monday as he signed a bill imposing onerous new mandates on refineries. Oil companies “buy all these ads saying somehow it’s California’s fault. They’ve been manipulating you. They’ve been lying to you.” 

The truth is that California’s gasoline prices are on average $1.47 a gallon higher than the national average owing to its gas taxes—the highest in the country—and environmental regulations, including cap-and-trade and low-carbon fuel standard. High operating costs have spurred seven California refineries to cease production over the last decade. On Thursday, Phillips 66 announced plans to cease operations at its Los Angeles-area refinery, which constitutes about 8% of the state’s refining capacity.

This has contributed to a tight market and price spikes whenever a refinery has problems. California’s new law will require refiners to maintain larger stockpiles of fuel, supposedly to mitigate supply shortages. But even Mr. Newsom’s energy commission warns that the mandate could “increase average prices.”

That’s because refiners will have to spend hundreds of millions of dollars building and maintaining more inventory, which they will have to replenish continuously since gasoline has a shelf life of only a few months. Refineries already maintain about two weeks of supply. Some may shut down to avoid the new and costly burden.

Refinery union leaders warn that the mandate will harm their workers. “Profit employs our members and allows them to feed their families,” they wrote to legislative leaders last week. “It should not be deemed villainous to operate legal and needed industries that turn a profit for shareholders, especially when they employ hundreds of thousands of Californians and contribute billions of dollars in tax revenue.”

Mr. Newsom disagrees. His goal is to drive oil and gas companies out of business, or at least out of the state. California’s oil production has declined about 35% since he entered office in January 2019 and by half over the last decade. Last month he signed a bill letting localities block new wells.

Now the California Air Resources Board (CARB) is preparing to ratchet up the state’s low-carbon fuel standard, which requires refiners to blend increasing amounts of renewable fuels into diesel and gasoline. CARB last September projected that the stricter standard would increase gas prices by 47 cents a gallon next year.

Danny Cullenward of the University of Pennsylvania’s Kleinman Center for Energy Policy last week estimated prices could climb 65 cents a gallon in the near term and by nearly $1.50 by 2035. Stanford University researchers forecast that the combination of the low-carbon fuel standard and cap-and-trade program would raise prices by $1.50 a gallon by 2030.

The kicker is that CARB plans to vote on the rule three days after the election. That’s politically convenient timing for Democrats in close-fought House and legislative races where Republicans have campaigned against the state’s high gasoline prices. While Mr. Newsom vilifies Big Oil, voters are starting to figure out that the real prices villains are in Sacramento."