February 4, 2023

Rise To Thrive

Investing guide, latest news & videos!

California mulls windfall tax on oil companies

2 min read
California mulls windfall tax on oil companies

California state lawmakers are scheduled to meet in a December special session to look at implementing a windfall profits tax on oil companies.

Gov. Gavin Newsom called the session a response to the “outrageous and unconscionable” price of gas in California.

“Crude oil prices are down but oil and gas companies have jacked up prices at the pump in California. This doesn’t add up,” Newsom said in a statement Sept. 30 when he called the special session for Dec. 5.

Gas prices at a Shell gas station in San Francisco on Oct. 3

Bloomberg News

Newsom also directed the California Air Resources Board to make an early transition to winter-blend gasoline in an effort to increase supply.

“A better use of the special session would be to take a hard look at decades of California energy policy and what they mean to consumers and our economy,” refinery trade group Western States Petroleum Association said in a statement. “If this was anything other than a political stunt, the Governor wouldn’t wait two months and would call the special session now, before the election.”

Newsom is expected to glide to re-election in November. His advocacy for a windfall profits tax shifts the focus on gasoline producers, amid his long-term push to electrify the vehicles on the state’s roads.

Gas prices in California averaged $6.06 per gallon Monday, compared to 3.89 nationally, according to AAA.

Newsom said the December date is far enough out for his administration and lawmakers to prepare for what will likely be a tough fight to impose a new tax even with a Democratic supermajority in the Legislature.

Consumer Watchdog, a nonpartisan advocacy group for American consumers, published a report Oct. 6 arguing a windfall profits tax on California’s oil companies is needed to bring gas prices back under control.

The Consumer Watchdog report was amplified by Newsom’s press office in its own news release.

Pointing to profits reported by California oil refiners to their investors, Consumer Watchdog outlined how it would structure the tax.

“The proof of the gouging is in the oil refiners’ own profits reported to investors,” said Jamie Court, president of Consumer Watchdog. “When the California gap with US gas prices was $1.25 per gallon in June, California refiners reported unprecedented profits in the West of more than $1 per gallon — up to ten times their return last year.”

Court added that the gap between California gas prices and the U.S. median has doubled to nearly $3 per gallon while refiners’ production costs have not increased. 

Oil company third quarter earnings reports are expected to be released at the end of the month. Historically every gas price spike in California shows up as profit spike as well, Court said.