Newsom Calls Special Legislative Session to Consider Tax on Oil Companies

Newsom dismisses criticism of California gasoline regulations and claims oil companies are price gouging.

Governor Gavin Newsom called for a special legislative session “to address the greed of oil companies.” Newsom stated at the time that “[g]as prices are too high. Time to enact a windfall profits tax directly on oil companies that are ripping you off at the pump.” A windfall profits tax is an additional tax on a sudden increase in profits for a particular industry that results from economic conditions for which the company or industry is not responsible.

The statement follows Newsom’s call in September for a windfall tax on oil companies “that would go directly back to California taxpayers.” In calling for the December special session, Newsom said his administration needs time to review similar taxes in the European Union.

Gasoline prices in California are $2.50 a gallon higher than the national average. California gas prices hit at an average of $6.42 a gallon on October 5, 2022, nearly reaching the record average of $6.44 a gallon set in June 14.

Supplies of gasoline in California are limited, as it least five refineries are down for maintenance. In response, on September 30, 2022, the governor directed the California Air Resources Board (CARB) to allow the early distribution of the higher polluting winter blend and called for a windfall profits tax on oil companies. (see Newsom Directs CARB to Allow Early Release of Winter-Blend Gasoline.)

Newsom said refinery maintenance was not the cause of the surge in price, as such maintenance occurs each year. He has argued that California’s environmental regulations are not the cause of the high prices, as the regulations do not equal the roughly $2.50 per gallon more.

“This is just rank price gouging. They can get away with it,” he said during a news conference. “They’re taking advantage of you, every single one of you, every single day. Hundreds of millions of dollars a week they’re putting in their pockets, lining their pockets at your expense, and then polluting this planet and leaving us all the external realities and costs associated with that.”

Others argue that the issue is not as simple. California requires a special blend of gasoline to reduce smog-producing emissions. The state also has higher taxes than other states and a higher cost of doing business. Refiners are also discouraged from investing in production improvements, as the state has mandated a move to zero-emissions vehicles. (See All New Cars Sold in California Must be ZEVs by 2035.)

Earlier efforts at windfall profits taxes, including a tax imposed in the United States during the 1980s, have failed to raise the expected revenue. The issue of determining whether profits in a volatile energy market are a “windfall” also contributes to the difficulty in imposing such a tax. There is also the risk that imposing the tax could discourage the investment needed to reduce prices.