California Enacts Legislation Targeting the Oil Industry

Last Tuesday, California Gov. Gavin Newsom (D) signed legislation targeting the oil industry. While the first-in-the-nation law focuses on transparency in the retail pricing of gasoline and could potentially cap profits in the oil industry, the final version of the law falls short of the governor’s original call for a “windfall tax on oil companies.”

After state lawmakers balked on assessing a windfall tax on oil profits, the legislation shifted towards oversight and accountability of the oil industry, allowing policymakers to gather more information on why Californians pay so much more at the pump than the average American. The law establishes the Division of Petroleum Market Oversight within the state energy commission, which is authorized to subpoena records from the oil industry and refer violations to the state AG. The law also sets up the Independent Consumer Fuels Advisory Committee, made up of experts that will advise the oversight division and energy commission. 

However, a provision of the new law still takes aim at oil company profits. But instead of going after profits directly through the tax code, the law authorizes the state’s energy commission to establish a “maximum gross gasoline refining margin.” Then, if deemed necessary, the commission can set a monetary penalty for an oil company that exceeds the max margin (or cap). All-in-all, it’s a watered-down and roundabout way to go after profits on gasoline, as the governor originally outlined. 

This all reminds us of last year’s big progressive victory in California — the Fast Food Accountability and Standards (FAST) Recovery Act. If you remember, the FAST Recovery Act sets up a state board with the power to set minimum industry standards on wages, working hours, and other conditions for fast-food workers statewide. Instead of setting employer mandates directly, lawmakers chose to set up an outside council with the powers to do so. 

But it’s unclear where either of these new laws are headed. The FAST Recovery Act is currently on hold until at least 2024, when voters will decide whether to keep the law or reject it in a referendum vote. Opponents have already threatened a lawsuit to block the new oil law and we  wouldn’t be surprised to see a referendum campaign against it. But even in the best-case scenarios, supporters of these new laws should not expect results for years. The FAST Recovery Act would need to prevail in the 2024 referendum vote and then set up the new state board and related regulations. Similarly, Gov. Newsom told supporters that it will take at least 9-12 months to set up the new energy commission division authorized in the oil law. And once it’s set up, regulators are only authorized, and not actually required, to establish the heralded “maximum gross gasoline refining margin” or penalize any oil companies for exceeding it. 

Gov. Newsom, with an eye towards a future presidential run, claimed that the final law is “10x better” than his original proposal. “This is more than we even could have imagined in late September when we had the first conversations around this.” Keep in mind that the political tone and policy ideas of the Golden State tend to spread across the country to other blue states.

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