The state Senate held a hearing last week to investigate so-called price gouging by oil companies in California given gasoline prices here are, according to state officials, an average of $2.61 a gallon higher than the national average. Instead of looking for solutions that help consumers, Gov. Gavin Newsom engaged in his usual anti-Big Oil hyperbole.
“Today’s hearing provided even more evidence that we need to crack down on Big Oil’s price gouging at the pump,” the governor said. “Big Oil’s lobbyists again used scare tactics and refused to provide answers or solutions to last year’s price spikes. We’re taking action to hold them accountable with a price gouging penalty and long-overdue transparency measures.”
Newsom and many of his fellow Democrats railed against the oil companies’ record profits and pointed to a “mystery surcharge” that they supposedly impose on California gasoline purchases. But there is no mystery to why California oil prices are so high or to why oil refiners are so much “greedier” here than in other places.
The state imposes the highest gasoline taxes in the country. California mandates a special environmentally friendly gas formulation that reduces supply, raises prices and makes California consumers more susceptible to price spikes at a limited number of refineries. The governor also is trying to shutter the gasoline industry here as part of his climate-change agenda that encourages companies to begin exiting California. That also reduces supply.
Quite frankly, the governor seems more interested in railing against these companies than in helping ease Californians’ pain at the pump. For instance, the governor’s signature idea is a price-gouging penalty that California would impose on excess oil-company profits. These “windfall profit taxes” have been tried before, but they ultimately harm consumers.
Oil production is a high-risk business, especially in states with a high level of regulation and taxation. Companies make investments in hope of — it’s clutch your pearls time – scoring large profits for investors. Newsom’s plan would slash those profits. As a result, companies would have fewer incentives to expand production and seek out risky new oil sources. Over time, it would reduce supply and further raise prices.
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The Tax Foundation pointed to a Congressional Research Service analysis of the nation’s 1980 Windfall Profits Tax and “found that the tax reduced domestic oil production by between 1.2 and 8.0%, and increased reliance on foreign oil by between 3 percent and 13 percent between 1980 and 1988 (when the tax was eventually repealed).”
Such data wasn’t lost on legislators last week, even Democrats who one might expect to be favorably disposed toward the governor’s proposal. “What are we trying to solve for?” asked Senate Energy Committee Chairman Steven Bradford, D-San Pedro, according to published reports of the hearing. “We have passed legislation here in California that has encouraged leaving oil in the ground … Have we created a scenario that has helped create this problem?”
The governor’s statement included attacks on “Big Oil’s lobbyists,” the lack of pricing transparency and accusations that the industry “advocated for dirtier fuel and more pollution.” Apparently, Newsom wants it both ways — to drive the industry and also complain that gas prices are high. If state officials seriously wonder why prices are higher here, they simply need to look in the mirror.