Newsom’s Refinery Mandates Set to Hike Gas Prices As Refinery Announces Closure

  • October 18, 2024
  • News

With less than a month before election day, California Governor Gavin Newsom signed new refinery supply mandates into law, threatening to hike gas prices not just in California, where prices now top $4.68/gallon, but also in swing neighboring states like Arizona and Nevada.

The bill, which was introduced in a special session convened by the Governor last month, provides the California Energy Commission with a variety of new regulatory powers, including new restrictions on maintenance and rules that could require refiners to maintain a minimum storage capacity. ABX 2-1 passed a final vote in the Assembly on Monday with just 41 votes, a bare majority, overcoming significant bipartisan opposition stemming from cost implications for consumers and workforce safety concerns at refineries.

The new refinery mandates are the latest development in California’s war on energy producers, including upcoming amendments to the state’s Low Carbon Fuel Standard and the state’s ongoing climate suit – both of which could further increase the state’s already sky-high energy prices.

Refinery Mandates Another Blow to California Business Climate

One company Newsom did not directly attack by name at his ABX 2-1 bill singing press conference was Chevron, the state’s largest refinery operator. In August Chevron announced its headquarters’ departure from Richmond, CA, a historic move widely seen as a rebuke of Newsom and the state’s hostile business climate.

Other critics, including governors from Arizona and Nevada, previously argued the mandate could lead to artificial shortages and higher prices in both bordering states that import gasoline from California. In a recent bipartisan letter to Newsom, Arizona Gov. Katie Hobbs and Nevada Gov. Steve Lombardo called on Newsom to abandon the scheme and instead adopt a cooperative approach with neighboring states.

Local coverage of the California law in Nevada and Arizona suggests the new mandates may have tremendous political fallout in with voters in both swing states, where polls show an extremely tight race.

Newsom Launches Unhinged Attacks Against Energy Workers At Bill Signing Press Conference

At the bill signing press conference Monday Newsom unleashed a stream of invective against the Western States Petroleum Association (WSPA), calling them a “polluted heart” and accusing energy workers of insufficiently caring for their own families:

“Talk about again, a polluted mindset. And I don’t know, I, you know, you couldn’t pay me enough to regurgitate the talking points of WSPA. The hell. Why do people need to do that? Don’t they care about their kids and grandkids, our future, places, lifestyles, tradition?”

The personal and direct insults against the energy sector came as a surprise to a variety of reporters watching the press conference, including WSPA themselves. Fox Business reports:

WSPA President and CEO Catherine Reheis-Boyd called Newsom’s remarks political theater filled with personal insults.

“This is literally politics above policy,” Reheis-Boyd told FOX Business. “To have his attacks, which were filled with personal insults, only serves to divide, not address the real issues that we’re trying to deal with.”

“To call the hard-working men and women of this industry… polluted hearts is just beneath the leadership that California deserves,” she added. “He chose to demonize an industry that powers California’s economy and literally fuels everybody’s daily lives. I was taken aback by the aggressiveness and the inflammatory nature.”

Newsom, oddly, also dismissed questions about the obvious political overtones of the legislation. Politico reports:

Newsom said at the press conference that the proposal was “not about politics.” At the same time, he posted an animated video on X showing former President Donald Trump cutting down trees with a chainsaw to make way for oil derricks. He accused the industry in the video of increasing gas prices during the election to “scare voters” into supporting Trump.

When asked by a reporter whether the video was meant to convey if this law serves as political punishment for certain companies, Newsom refused to directly answer.

Refinery Bill and Low Carbon Fuel Standard Changes Will Send CA Gas Prices Even Higher

Gas price hikes associated with Newsom’s new refinery law aren’t the only factor putting higher pressure on prices in California. Newsom air regulators are set to approve changes to the state’s Low Carbon Fuel Standards next month, which could increase gas prices by 0.47 cents per gallon or more beginning next year. The combination of Newsom’s new refinery mandates and upcoming LCFS price hikes is sending progressive outlets like the Los Angeles Times into a state of sheer panic:

Last year Newsom regulators estimated changes to the LCFS would cost drivers an extra 0.47 cents per gallon starting in 2025, a figure Newsom officials walked back but have yet to revise.

The lack of clarity around the LCFS is causing increased consternation, from both California businesses and left-leaning consumer advocacy groups who remain astounded the Newsom administration has failed to update cost estimates for the LCFS, which some outside analysts suggest could add up to $0.65 cents per gallon. Politico reports:

“I can’t tell you why they didn’t update the numbers, but I can speculate,” said Danny Cullenward, a climate economist who serves on a CARB advisory committee. “The obvious answer is because the numbers are scary.”

[…]

Cullenward put out a report today using CARB’s formula to estimate that under the current proposal, gas prices could increase 65 cents per gallon in the near term and 85 cents per gallon by 2030. Colin Murphy, co-director of UC Davis’ Low Carbon Fuel Policy Research Initiative, thinks price increases in 2030 would most likely range from 22-44 cents but could go higher if credit prices return to their historical highs.

None of that is assuaging consumer advocates like Jamie Court, who can’t remember a time that CARB has failed to put out at least a semblance of an attempt at an accurate cost estimate. [emphasis added]

Phillips 66 Announces Closure of LA Refinery Days After Newsom Signed Mandates Into Law

Californians may already be experiencing potential ramifications from the law. On Wednesday, Philips 66 announced they intend to close their Los Angeles refinery beginning in the fourth quarter of 2025.

While Philips 66 maintains they are not exiting the state or closing the refinery due to the new law, the company’s press release heavily suggested that additional regulatory uncertainty contributed to their decision, with Chairman and CEO Mark Lashier saying:

“With the long-term sustainability of our Los Angeles Refinery uncertain and affected by market dynamics, we are working with leading land development firms to evaluate the future use of our unique and strategically located properties near the Port of Los Angeles.”

The company’s announcement stands to impact 600 workers and 300 contractors at the Wilmington LA facility, impacting 8 percent of state production and leaving just nine active refineries available in California.

The governor’s office did not immediately respond to the announcement. However, California State Assembly Republican Leader James Gallagher issued the following statement on X:

Only last week industry and labor representatives expressed concern to legislators that Newsom’s refinery mandates could jeopardize continued operations at many refineries across the state. Indeed, Chevron executive Andy Walz warned lawmakers the law would inevitably hasten the ongoing exodus of energy investment from California:

“I want people to know we’re not going to invest in California and they’re not going to have the reliable products at an affordable price in the future. That is as simple as I can make it to make people understand. Exxon is gone, Shell’s gone, BP is gone, they’re all gone because of the environment that exists there.”

BOTTOM LINE: Gov. Newsom’s new refinery mandates will increase gas prices not only in California, but also create new political complications for the Governor’s allies in crucial swing states. Combined with upcoming changes to the Low Carbon Fuel Standards, it’s safe to say there’s no relief on the horizon for California drivers.

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