“Pro tip: unbranded gas comes from the same refineries, storage tanks, and pipelines, and it meets the same state standards to keep your engine running clean,” Newsom’s office posted Thursday on X. “Big Oil is already making billions off Trump’s Iran War; don’t let them rip you off even more by overpaying for the brand name.”

Newsom’s office cited an analysis by a group within the state’s energy commission, which oversees the oil and gas industry, that found that Chevron averaged more than 60 to 80 cents per gallon above unbranded alternatives.

The call-out follows Chevron posting signs at California gas stations blaming the state’s climate policies for the high cost of gas. The average price of gas in California sat at $6.14 per gallon on Thursday, about $1.58 higher than the national average, according to the American Automobile Association. The state taxes consumers about 70 cents per gallon of gas, according to the state’s energy commission. That is the highest gas tax in the country.

“California politicians are choosing foreign oil and fuels over local jobs and lower costs,” the signs read. They feature a QR code that directs to a Chevron webpage asking people to “speak up for affordable, reliable energy.”

It is not clear when Chevron put the signs up, but spokesman Ross Allen said they are part of a campaign the company launched three years ago to inform drivers on the price impacts of California policies.

“We’ve been very vocal about the importance of customer education in California so that our drivers and our consumers understand where their tax dollars are going,” Allen said.

There are hundreds of Chevron gas stations operating in California, and most of them are operated independently and set their own prices, he said.

Memorial Day is typically one of the busiest travel weekends of the year.

Prices at the pump have swelled nationwide since the Iran war began, launching a global energy crisis. The price of crude oil, which is the main ingredient in gasoline, has climbed during the war because the Strait of Hormuz, the narrow passage of the Persian Gulf through which a fifth of the world’s crude oil normally passes, has effectively been shut. Oil tankers have been stranded there unable to deliver crude.

Newsom, who often touts the state’s status as a global climate leader, has passed policies in recent years aimed at cracking down on oil company profits and reducing gas prices.

He signed a law in 2023 allowing the state’s energy commission to penalize oil companies for excess profits, declaring the state had “finally beat big oil.” But regulators voted last year to hold off on plans to penalize businesses until 2030 and prioritize other efforts to protect consumers at the pump.

The postponement came after two oil refineries that accounted for roughly 18% of the state’s refining capacity announced their plans to close, reigniting debate over the price impacts of the state’s ambitious climate policies.

Newsom signed another law in 2024 giving the commission the authority to require refineries to keep a certain amount of fuel on hand. The goal is to try to keep prices from increasing suddenly when refineries go offline for maintenance. But that regulation has also stalled.

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The closure will affect approximately 600 employees and 300 contractors that currently work at the Los Angeles-area refinery. Politico reported that this closure would also impact 8% of the state’s already tight gasoline production.

Although Phillips 66 spokesperson Al Ortiz denied in an email to Politico that the closure was a response to Newsom’s signing the new law, California’s treatment of its oil industry has undoubtedly been a factor.

The news follows an announcement in August 2024 that Chevron, the second-largest U.S. oil company, will relocate from its California headquarters to Texas. The company, with roots in California dating back to 1879, will transition its headquarters to Houston over the next five years.

Chevron’s move comes as a response to California’s stringent regulations and aggressive climate policies. Chevron’s CEO, Mike Wirth, expressed concerns about the state’s business environment in an interview with The Wall Street Journal.

Wirth argued that California’s policies are detrimental to consumers, discourage investment, and ultimately harm the state’s economy. The relocation of such a prominent company highlights the growing tension between traditional energy firms and states pursuing ambitious climate goals.

California’s Environmental Regulations

Over the years, California has adopted the nation’s most stringent fuel standards. The state requires the production and sale of a unique blend of gasoline, known as California Reformulated Gasoline (CaRFG), which has stricter environmental standards than the federal blends used in most other states. This special formulation reduces emissions of pollutants like volatile organic compounds (VOCs) and sulfur, but it is more expensive to refine, adding to the overall cost of gasoline.

California’s gasoline also contains lower sulfur levels than the national average. Reducing sulfur is costly for refineries because it requires additional processing steps, leading to higher production costs that are passed on to consumers at the pump.

California’s Low Carbon Fuel Standard (LCFS) requires gasoline producers to reduce the carbon intensity of the fuels they sell. This can involve blending more expensive biofuels, investing in cleaner production technologies, or purchasing credits from other companies to meet the carbon intensity reduction targets. The added costs of complying with the LCFS are reflected in the price of gasoline.

Under California’s Cap-and-Trade program, refineries and other large greenhouse gas emitters must buy carbon credits to offset their emissions. These credits increase operational costs for refineries, which in turn raise the price of gasoline. Since this program is unique to California, it adds a cost that refineries in other states don’t have to bear.

Unintended Consequences

California energy producers must also comply with additional regulations, which are primarily designed to lower pollution. However, there are costs associated with these strict regulations, and there have been unintended consequences.

Because of its unique gasoline blend, the state cannot easily import gasoline from other regions in the event of supply disruptions. If a refinery goes offline due to maintenance or an accident, it is difficult to quickly source replacement fuel from outside the state because other regions don’t produce the same gasoline blends. This limited supply flexibility can cause price spikes when there are disruptions, leading to volatility in gasoline prices.

Those prices spikes, in turn, can lead to higher profits for some refiners in the state. If one refinery goes offline for unplanned maintenance, the supply of fuel is suddenly reduced. That will either result in a price spike or outages. Therefore, some refiners may see profits surge as fuel prices spike.

Although these prices spikes have been self-inflicted, California has tried to remedy the situation by suing oil companies and passing additional laws that have tried to prevent these price spikes. At the same time, California has vilified its oil industry for years. This creates a hostile environment for these companies.

California’s Future

Ultimately, California can pass whatever laws it wants with respect to its oil industry, but these companies can also respond. That’s what Chevron, and now Phillips 66, have done.

California’s aggressive environmental policies and stringent regulations on the oil industry have created a complex and challenging landscape for energy companies operating in the state. While these measures aim to reduce emissions and combat climate change, they have also led to unintended consequences such as higher fuel prices, supply vulnerabilities, and a strained relationship with the oil industry.

The recent decisions by major players like Chevron and Phillips 66 to relocate or cease operations in California highlight the delicate balance between environmental goals and economic realities. As the state continues to pursue its ambitious climate agenda, it may need to reassess its approach to ensure a stable energy supply and mitigate the economic impact on consumers.

The ongoing exodus of oil companies from California serves as a cautionary tale for other states considering similar regulatory paths, underscoring the need for a carefully calibrated approach that addresses both environmental concerns and economic stability.

These moves potentially further restrict California’s fuel supply, and will likely lead to even higher prices for California consumers.

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SACRAMENTO, Calif. (AP) — It was just a few weeks ago that California Gov. Gavin Newsom called the oil industry the second most powerful force on earth, trailing only Mother Nature in its ability to bend the elements — both physical and political — to its will.

Yet on Tuesday, Newsom signed a new law that gives state regulators the power to penalize oil companies for making too much money, the first of its kind in the country. It’s the type of legislation the oil industry might have crushed in the past. But on Monday, the bill cleared the state Assembly with only one Democrat voting against it.

“We proved we could finally beat big oil,” Newsom said Tuesday after signing the bill.

The bill is the latest in a string of defeats for the oil industry in California, a state many don’t think of as a fossil fuel powerhouse. But for decades, California was one of the leading oil producers in the United States with a bustling industry that was a key part of the state’s economy. The state is now the nation’s seventh-largest oil producer, according to federal data.

The oil industry doesn’t mind a David vs. Goliath comparison “as long as you think we’re David and not Goliath,” Kevin Slagle, spokesperson for the Western States Petroleum Association, said about the industry’s influence at the state Capitol. “Just look at the results the last couple of years on legislation.”

Oil production has been steadily declining since the late 1980s from a combination of exhausting supplies and the state’s changing policy priorities. A state law requires California to be carbon neutral by 2045, meaning the state would remove as many carbon emissions from the atmosphere as it emits. The state’s plan to do so would reduce demand for liquid petroleum by 94% by 2045.

State regulators have banned the sale of most new gas-powered cars in California by 2035. And last year, the state Legislature approved a bill limiting where new oil wells can be drilled, providing buffer zones around homes, schools and other sensitive sites.

“We’re never going to get it right, in terms of this transition (away from oil), unless we minimize and mitigate the power and influence of big oil in this country,” said Newsom, now in his second term in office and widely seen as a potential presidential candidate beyond 2024. “They’re the biggest impediment to a just transition.”

While its influence in California might have diminished, the industry is still asserting itself. The Western States Petroleum Association spent $11.7 million lobbying lawmakers in the 2021-2022 legislative session, far more than any other single group. Chevron followed behind it, spending $8.6 million, according to state campaign finance filings. The next closest single spender was the California Teachers Association, at $7.1 million.

Likewise, the industry spent millions on campaign contributions in the 2022 election, supporting both Democrats and Republicans. More than a quarter of all 120 seats in the Legislature are newly elected members.

Those donations did not always translate to favorable votes. New Assemblymember Esmerelda Soria, a Democrat who represents parts of the Central Valley, was the top beneficiary of money from a Western States Petroleum Association-affiliated committee. Soria voted Monday to support the legislation despite industry opposition.

The only Democrat to vote against the potential oil profits penalty was Assemblymember Jasmeet Bains, whose district includes Kern County, home of the state’s oil industry. Her vote appeared to irk the Newsom administration.

Bains, a family medicine and addiction doctor who was first elected in November, tweeted a picture of the vote, saying: “Stand alone if you must, but always stand for truth.”

Dana Williamson, Newsom’s chief of staff, replied: “Alone and confused you shall likely remain.”

Bains said she voted against the bill because during the height of the gasoline price spike last summer, the Newsom administration and legislative leaders refused to suspend the state’s gas tax. They argued oil companies would not pass along the savings to drivers.

“What’s to stop them from passing on the cost of this new tax with high prices at the pump?” Bains said. “That inconsistency is even more frustrating.”

Though the industry couldn’t stop the legislation, its presence could be felt in the final version, said Chris Micheli, a veteran California lobbyist who represents business clients but was not involved in the oil profits legislation. Newsom initially called for the Legislature to pass a new tax on oil company profits. Then he asked lawmakers to instead impose a penalty if oil company profits surpassed a certain threshold.

Finally, Newsom and lawmakers agreed to let the California Energy Commission decide, punting the decision to a five-person panel appointed by Newsom with the consent of the state Senate. The bill also creates a new state agency with the power to monitor the petroleum markets, including requiring oil companies to disclose lots of data about their pricing.

“The fact it took them three different substantive proposals to find something that would actually pass the Legislature I think goes to show the continued power and influence of the oil industry in this state,” Micheli said.

Next year, the oil industry will be looking to exert its influence in another arena — public opinion. The industry is challenging a new state law that bans drilling new oil wells nearby homes, schools and other sensitive areas. Voters will decide in 2024 whether to uphold the law.

“The partisan numbers of the two houses of the Legislature have dramatically changed,” Micheli said, referring to Democrats now having total control over state government. “The broader business community is going to have to go to the voters on some issues of public policy.”

Newsom acknowledged Monday the importance of oil for the global economy, telling reporters: “I’m driving home tonight” and “I’m flying this weekend.”

“Oil has built the American economy, built the industrial economy, I get it,” Newsom said. “But we are transitioning. And all I’m asking for is don’t rip us off anymore.”

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