California’s new law imposing a profit margin cap on state oil refineries is the first in the nation to penalize companies for hiking prices at the gas pump. With new and potentially stringent reporting requirements for companies like Chevron, PBF Energy, Marathon, Phillips 66 and Valero, Gov. Gavin Newsom and lawmakers hailed it as proof they could take on Big Oil and win. And plenty of climate and environmental justice groups went to bat for the bill publicly.
Yet, some of those groups say they’re disillusioned by how the law is being implemented, claiming that it takes an ineffective approach to winding down the state’s oil refineries, some of them more than a century old, and could slow down the state’s progress towards its climate goals. It wasn’t supposed to be that way: Climate groups had believed they secured the support of the governor in pushing for a broad, whole-of-government plan to phase out refined fossil fuels in the law. But the version of the legislation that passed delays hard and urgent choices about undoing massive fossil fuel infrastructure, while keeping the door open for conversions to biofuels and hydrogen refineries — which have local pollution and climate impacts.
After displaying a united front in support of the governor, advocates felt torn on the weaker refinery language. While not all regretted publicly supporting the measure, some asked if it was worth lending their credibility to something that, in the end, was not designed to be an effective climate strategy.
The state forecasts that by 2045, Californians’ demand for gasoline and other fossil fuels will decline by 85%, drastically reducing by hundreds of millions of barrels a year the demand for the products turned out by the state’s refineries — and likely resulting in some refineries shutting down. The state has mandated its agencies to come up with a plan for this transition by the beginning of 2025.
For the last two years, climate advocates have pushed Newsom and lawmakers to proactively tackle the gargantuan and contentious task of restricting oil refining. They eventually caught the ear of top air regulators, including California Air Resources Board Chair Liane Randolph, who approved a climate plan last year acknowledging that “a multi-agency discussion is needed to systematically evaluate and plan for the [refinery] transition to ensure that it is equitable.”
The delicate balance will be ensuring that there is sufficient fuel available during the transition so that lower income drivers — for whom electric cars are still too expensive — won’t be screwed over while also not screwing the climate. A successful plan would put California in alignment with recommendations from the U.N.’s latest Intergovernmental Panel on Climate Change report, which warns that a delayed transition risks locking in fossil fuel infrastructure.
Already, the world’s existing fossil fuel facilities, including California’s oil refineries, have the potential to push the world past 1.5 C (2.7 F) degrees of warming, a scenario in which the climate becomes more destabilized, resulting in more extreme and unpredictable natural disasters devastating life on Earth.
After Newsom introduced the windfall bill last December, climate groups sent proposed language for how to transition the refineries. For months, the administration assured its support for the idea, which directed two cabinet-level agencies — CalEPA and the Natural Resources Agencies — to lead the planning process. Both oversee junior agencies, such as the Geologic Energy Management Division and the Department of Toxic Substances Control, that play key roles in regulating the delivery of crude oil to refineries and the management of their toxic legacies.
But a week ago, the language worked out by Newsom and the Legislature set out a much more limited approach. Instead of a cabinet-led process, the law directs two junior agencies — the Air Resources Board and the Energy Commission — to prepare a refinery transition plan by the end of next year. Both have relatively narrow jurisdictions pertaining to the state’s supply of energy and managing emissions, so they can’t prescribe actions across refinery supply chains necessary to safely shut them down. The original proposal for a “managed decline” was struck, as were recommendations to maximize health impacts for refinery communities, who could easily be left to deal with corrosive and dangerous machinery when companies dump the assets. CalEPA and the Natural Resources Agency will provide consultation; environmental justice, public health and labor representatives were no longer mentioned.
Big Oil will certainly have a say: The law ties the refinery transition to ongoing assessments of future fuel demand. Industry opposed the windfall law, but a representative of the oil and gas sector signaled at a hearing that it was open to helping the state study supply-and-demand trends. These studies will be integral to refinery transition plans, according to the law.
A letter sent to Sen. Steve Bradford (D-Inglewood), chair of the Senate Energy, Utilities and Communications Committee, from seven climate and environmental groups less than a week before Newsom signed the bill describes how they supported the windfall bill as “an opportunity to hold the oil industry accountable for price gouging and excess profits” but that it must include “an interagency process to plan for the state’s transition away from petroleum fuels.”
Four advocates involved in high-level discussions, who asked for anonymity in order to speak candidly about climate politics, described the changes as a betrayal by the governor’s climate team. Some were upset that much of the planning for the refinery transitions was handed to the California Air Resources Board, whose market-led approach to cutting greenhouse gas emissions has consistently come at the expense of low income communities, where agency decisions have concentrated polluted air relative to wealthier areas.
“If this whole bill was really just about windfall profits, avoiding price spikes and keeping consumer costs low, I think we wouldn’t really have a dog in this fight,” one person who participated in the discussions said.
Rajinder Sahota, deputy executive officer for Climate Change and Research at the California Air Resources Board, did not respond to an email from Capital & Main asking whether the agency had a role in drafting the refinery transition language.
Groups that supported the stronger refinery transition language, including the Asian Pacific Environmental Network and Communities for a Better Environment, hope the governor will address it in budget decisions later this year. But trust has been damaged, and it’s unclear if legislators will back the change.
Not everyone who signed the letter to the administration regretted their support for the windfall bill, including Martha Argüello, executive director of Physicians for Social Responsibility-Los Angeles. When the final version was released, she said, emails started flying between advocates about whether to continue supporting the bill. Argüello backed it as a measure to hold Big Oil accountable, but thought the governor missed an opportunity to use his political capital for an important piece of the energy transition.
“It was a hard trade-off,” Argüello said. “It’s another teachable moment we have to engage with the administration, so they understand part of holding the fossil fuel industry accountable is in reducing our extraction and use of fossil fuels.”
Lauren Sanchez, the governor’s senior adviser on climate policy who is the designated spokesperson to discuss the windfall law, did not respond to a request for comment.
