California Puts the Fossil Fuel Industry in the Penalty Box

California Puts the Fossil Fuel Industry in the Penalty Box

California Puts the Fossil Fuel Industry in the Penalty Box

New legislation would empower the state’s energy commission to investigate price gouging and implement fines for refiners.


This week, California’s Senate Energy, Utilities, and Communications committee began holding hearings on whether and how to implement a windfall profits “penalty” on fossil fuel companies that made superprofits during last year’s gas and oil price spikes.

Supporters are calling it a penalty rather than a tax for a pragmatic reason: In California, two-thirds of legislators have to vote to raise taxes, but only 50 percent plus one need to vote in favor to raise other sorts of fees. Semantics aside, the intent is the same, whether it is labeled a penalty or a tax: to implement Governor Newsom’s call, from last autumn, to penalize energy companies that made a fortune from gas prices that, in California, were in the $7 a gallon range in many locales during the summer and autumn. In the first nine months of 2022, the five biggest oil refiners in California made a combined profit of more than $67 billion, almost four times what those same companies made in the first three quarters of 2021.

In early December, riding popular anger, Newsom’s office came up with specific language for the proposal. The legislation, introduced by the powerful Senate budget committee chair Nancy Skinner, would empower the energy commission to investigate all parts of the energy supply chain to determine the methods of price gouging that led to California’s gas prices’ soaring to more than $1 higher than the national average, and in some parts of the state beyond even that. It would then implement a series of fines if refiners raise prices over permitted profit margins.

None of the specifics have yet been laid down. The acceptable profit margins are still to be determined, as are the penalties, and it’s likely this bill will provoke a furious reaction from both the GOP and the energy industry as it makes its way through the legislature. To date, more than 80 environmental advocacy groups have come out in favor of the legislation. Meanwhile, the GOP has doubled down on opposing windfall penalties, arguing instead for gasoline tax holidays and for allowing cheaper but more polluting blends of gas to be sold year-round in the Golden State. Given the power of the fossil fuel industry, it’s by no means a given that the legislation will ever see the light of day. If it does, however, it will be a huge populist feather in presidential hopeful Newsom’s cap, and could serve as a template to rein in some of the world’s most powerful companies’ worst profiteering instincts.

California has long hewed to its own path on energy policy. It has a half-century-old EPA waiver allowing it to require stricter emissions standards for vehicles than does the federal government—a waiver that survived relentless assaults first by the George W. Bush administration and then during the Trump years. It has successfully pushed for more stringent mandates on required miles per gallon for gas-powered cars sold in the state. It has invested more in Zero Emission Vehicles, and the accompanying charging station infrastructure, than any other state—or, for that matter, most other countries. And it is going full steam ahead in promoting renewable energy sources to power the electric grid that will, in the coming decades, power the state’s vehicle fleet—it has a mandate in place to require all new passenger cars sold in the state to be EVs by the year 2035.

Because of its market power and its political clout, where California goes on energy policy, most other Democrat-governed states follow. Fourteen other states now adhere to California’s standards on emissions and promote EVs as a way to decarbonize their vehicle fleets. It is reasonable to assume that if California succeeds in passing a windfall profits penalty on fossil fuel companies in the coming months, and uses that windfall either to send direct payments to individuals and families around California or to invest more in the move toward non-gas-driven cars, trucks, and buses, many other states will ultimately join them in targeting energy-profiteers.

Meanwhile, Republican-led states continue to move, irrationally, in the opposite direction, doing everything in their power to protect fossil fuel companies and to prolong their residents’ reliance on gas-guzzling cars. In Wyoming, recently, legislators introduced a bill that would, if it passes, mandate car sellers in the state to phase out the sale of EVs entirely by 2035. In Virginia, GOP governor Youngkin nixed the building of a large Ford car battery plant in the state, ostensibly because of Chinese involvement in the project; meanwhile, GOP legislators are attempting to roll back carbon emission reductions that had been mandated by the previous Democrat-controlled legislature. In Missouri, GOP legislators are looking to pass legislation banning cities and states from mandating that businesses install EV chargers in their parking areas. In North Carolina, GOP legislators are seeking to bar cities from offering free EV charging stations unless they also offer free gas to residents.

Of all the grand divides in American political life and rhetoric, perhaps none is starker than the cleavage over how to, or whether to, tackle climate change. Within that, nothing embodies this schism more than the two opposing mandates out West: Wyoming’s recent efforts to phase out EVs by 2035, versus California’s efforts to phase out the internal combustion engine by the same year, and its attempts to penalize oil companies that made tens of billions of dollars through unfair pricing during last year’s global energy shocks.

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