When gas prices rise, it instantly fuels political rhetoric about price gouging and the need to help motorists pay at the pump. It’s as automatic as pressing the start button and hearing the engine start.
As California prices soared in recent days, Governor Gavin Newsom proclaimed he wanted to retaliate against oil magnates by imposing a windfall tax and returning the money to drivers.
“Crude oil prices are falling. Oil industry profits are on the rise. Yet gas prices in California have risen at a record high. It doesn’t fit,” the governor tweeted.
“We are not going to sit idly by while greedy oil companies swindle Californians.”
He took the Legislature back by surprise. But the leaders reacted instinctively.
“California are still being ripped off by indefensible oil company price increases,” Senate Leader Toni Atkins (D-San Diego) and Assembly Speaker Anthony Rendon (D-Lakewood) responded in a joint statement.
They pledged “to carefully consider any proposal to seek the windfall profits that oil companies make by defrauding consumers. In fact, we’ll be looking at every option to end the oil industry that profits off the backs of hard-working Californians.
UC Berkeley energy economist Severin Borenstein put it very well in a May blog post. “Politicians and the media have been obsessed with ‘doing something’ about high gas prices,” he wrote.
“Leaders on the left are expressing outrage that oil companies are making so much money and not sharing it with consumers…. Like it was a trick. Apple will lower the price of its iPhone because it earns too much money?
“From right-wing politicians, comes the political response ‘drill, baby, drill’….
“It’s frustrating when direct economic analysis takes precedence over political rhetoric and ideology.”
Borenstein is director of faculty at the UC Berkeley Energy Institute.
I asked him about Newsom’s proposed windfall tax.
“It would do nothing to lower gasoline prices,” the professor said. “It would only get some of the money back.
“We should tax the extraction of oil” – tax the mud as it is pumped from the ground. “We are the only major oil-producing state that does not. The oil industry is fighting like hell against this.
The legislature passed a severance tax on petroleum in 2009, but the then government. Arnold Schwarzenegger vetoed it. In 2006, the oil industry spent $95 million to defeat a layoff measure.
It would bring in at least $1 billion a year, but it’s not going to happen in the foreseeable future. Democratic lawmakers are nervous about taxes and Republicans are protective of the oil industry.
In my imagination, I could see Democratic lawmakers rolling their eyes as Newsom unveiled his tax proposal by posting a few characters on Twitter, rather than spelling out the details in a carefully crafted policy brief. They think, “Here he goes again.
Rhetoric is easy for this governor. He promised the details in a week or two. They will be much harder. How do you determine windfall profit?
And is this a political ploy by the oil industry? An old-fashioned “October Surprise” designed to hurt the ruling party – the Democrats – with unsustainable gas prices ahead of the election?
If Democrats think so, Newsom should immediately recall the Legislature in special session to deal with the wrongdoing.
The governor is expected to work closely with legislative grantees to round the vote to the necessary two-thirds majority. It’s not his style. It is possible but very difficult in an election year. This would require flexing all the muscles of the governor and the rulers.
Or is it the natural result of too many oil refineries closing simultaneously for repairs – coincidence rather than collusion?
Only a few people really know that. And they sit in corporate suites, not in the governor’s office or the legislature.
If the Legislative Assembly does not meet before the November 8 election, it is unlikely to consider the issue until new members take office in early December. It would probably take at least January before the new legislature acts.
Meanwhile, the state is starting to send Californians $9.5 billion in so-called rebates inspired by last winter’s gas price hike. You don’t need to own a car to qualify. Refunds will range from $200 per taxpayer to $1,050 per family, with low-income people receiving the most. If your income exceeds $250,000 for an individual or $500,000 for a couple, you get nothing.
This relief program will cost the oil companies nothing. It will cost the state.
Newsom has thankfully taken some significant action that should bring prices down at the pump — perhaps 50 cents a gallon in a week or two. He asked the California Air Resources Board to allow refineries to start producing cheaper winter blended gasoline.
It could make Los Angeles more polluted. But expensive summer blended gas is one of the reasons fuel prices in California are so much higher than in other states.
Other reasons are very high state taxes, environmental regulations and additional refining costs. California is also isolated: there is no pipeline that brings gas into the state. We import by ship. And our own oil production has fallen over the decades, largely because wells have been pumped.
This is likely to get worse as we move away from gasoline engines. Less demand will mean fewer refineries and less supply. Higher prices.
But less emissions of greenhouse gases that modify the climate.
It will be a bumpy road for motorists, regardless of the merits of an improbable windfall tax.
