A bill to tax oil companies on profits is raising questions about the impact on residents and businesses already facing inflation pressure and high gasoline prices.
The bill, introduced by Democratic state senators and assembly members, and designated as SBX1 2, was called for in a special session by Gov. Gavin Newsom and would penalize oil companies once a certain profit level is met.
CalChamber has designated the bill its first Job Killer of the 2023 session because of the precedent it would set, Brady Van Engelen, a Chamber policy analyst, said in an email response to the Northern California Record.
Van Engelen
| https://calchamber.com
“It sends a message to other industries that while you can do business in California, however you can only do business to a certain extent,” Van Engelen said. “This will discourage refiners from being efficient in their operations, and it also pulls capital away that could be re-invested into their facilities. These are often investments in new technologies that align with the state’s climate goals.”
Nor would the penalty tax actually lower the price of gasoline, Van Engelen said.
“That is a question of supply and demand,” Van Engelen said. “And under no circumstance does the proposal provide any means to increase supply to meet demand at a lower price.”
Van Engelen noted that California is the third largest gasoline market in the world, with more than 300 billion miles traveled annually.
“In fact this proposal may actually increase the price of gasoline,” Van Engelen said. “At one point, there were over 35 refineries operating in the state. Now, there are 10, and there will soon be eight. A proposal like this has the potential to push more refineries out of the state, which would further reduce supply.”
Van Engelen authored the Feb. 14 Chamber letter to legislative leaders, detailing concerns with SBX1 2.
It’s important to examine the root cause, which is a supply issue, Van Engelen said.
“And we should focus our conversations on how to advance supply constraints,” Van Engelen said. “Not only that, the proposal is complicated. Severin Borenstein, the Director of the Energy Institute at Haas School of Business, at the UC Berkeley, noted that, ‘a windfall tax isn’t likely to raise or lower gas prices, but it will be difficult to implement’. We should have a frank conversation about what can be done in the short term – to provide immediate relief.”
And Van Engelen said the state should focus on what can be done in the long term to ensure that supply can meet demand.
“Historically, fuel in California has been more expensive; the California Energy Commission (CEC) said just as much in their September 2022 report that fuel costs more in California because of the ‘isolated nature of the state’s transportation fuels market, a special gasoline recipe that reduces air pollution, environmental program costs, and taxes,'" Van Engelen said.
SBX1 2 had its first committee hearing last week.
“We all want to see a lower price at the pump; however, what is being proposed isn’t going to achieve that,” Van Engelen said. “Let’s look at measures that can address supply constraints. For example, we switched blends earlier than we typically do, and that allowed the refiners to increase their output.
“That ultimately led to lower prices at the pump.”