Would Raise Costs to All Californians

(February 17, 2023) Legislation creating a misguided policy that would exacerbate California’s affordability crisis was named by the California Chamber of Commerce this week as the first bill on the 2023 job killer list.

SBX1 2 (Skinner; D-Berkeley) proposes to cap oil refiner profits and financially penalize oil companies when the state determines these companies are making too much money.

Worsens Affordability Crisis

The bill is effectively a tax on the manufacture of products critical to the daily lives of Californians and employers in the state and would not provide any relief at the pump. SBX1 2 would exacerbate California’s affordability crisis, making the state an even more expensive place for everyone — businesses and residents alike.

“The predictable consequence of taxing the production of California oil and gas will be less production, higher prices and eventually more expensive imports,” said CalChamber Policy Advocate Brady Van Engelen in a February 14 letter to Senator Nancy Skinner, author of SBX1 2. “The policy this bill sets in motion would discourage employers in industries far beyond the energy sector from expanding or maintaining operations in California. It establishes a playbook for state government to arbitrarily determine what a ‘reasonable’ profit is. That is appropriately the role of the market in competitive industries, not government.”

Deters Job Growth

Van Engelen continued: “At a time when we may be at risk of an economic contraction, we should collectively be identifying solutions that can reduce costs and bring more jobs to the State, which ultimately increases revenue. Unfortunately, this measure will do the exact opposite and likely deter job growth in a sector that historically has competitive high-paying wages.”

CalChamber’s letter points out that similar proposals have been tried and failed in every instance — at both the state and federal levels. The efforts were repealed in all cases for failing to generate additional revenue and doing nothing to impact the price of gasoline.

Cost Factors

The California Energy Commission pointed out in a September 2022 report that filling up the tank in California costs more for reasons that include “the isolated nature of the state’s transportation fuels market, a special gasoline recipe that reduces air pollution, environmental program costs, and taxes.”

Similarly, Professor Michael A. Mische from the University of Southern California Marshall School of Business attributed the state’s high oil and gas prices to “real-world economics” and market factors such as the geopolitical environment, weather, operations, high dependency on foreign-sourced oil, California’s overly complex regulatory environment, high taxes, and mandatory special blends.

Transition

The CalChamber letter notes that many fossil fuel companies are transitioning to cleaner energy solutions, similar to the rest of the state’s energy mix and that transition process requires the very capital that SBX1 2 is trying to punish. Without these infusions of capital, the transition to a net-zero carbon future will become less likely or on a lengthier timeline, the letter states.

For example, refiners have been introducing cleaner blends tailored for California and have been re-engineering the refining process to further reduce emissions from the production of fuels produced in California. Both efforts require significant investments to retrofit the refining facility in alignment with California’s climate goals.

In the transition to a cleaner energy future, policymakers should be mindful that “demand for refined products still exists, and marginal reduction in emissions stemming from facilities that provide these fuels should be viewed as a necessary puzzle piece to our transition,” the letter comments.

Staff Contact: Brady Van Engelen