Opinion: A California Windfall Profits Tax Would Curb Gas-Price Gouging

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The climb in the cost at the pump to $2.60 per gallon more than the rest of the United States is unprecedented


October 15, 2022 


Ever since 2015, Californians have been on a roller-coaster ride with gasoline prices consistently a dollar higher than U.S. gas prices.

But the recent steep climb to a $2.60 more per gallon than U.S. prices is so unprecedented that Gov. Newsom rightly called a special legislative session to enact a windfall profits tax.

The governor correctly sees the forest through the trees. Gas prices in California are not set by some magic market mechanism. They are set by the five refiners that make 97% of the state’s gasoline and command their price at every retail gas station in the state – a price that includes an unprecedented profit margin.

The proof that the Big Five are gouging us is the companies’ own reports to their investors.

The five oil refiners’ per-gallon profits – the difference between the cost of the crude oil they buy and the gasoline they make from it to sell – were between 79 cents and $1 per gallon between April through June, specifically from West Coast gasoline.

These unprecedented second-quarter profits were three to 10 times more than the same period last year and the highest among each refiner’s reported regions across the United States and the world. For context, the average oil refiner profit reported from 2001-21 was only 32 cents per gallon.

This California payday helped the five big refiners pump up their second quarter profits to $26 billion – a $14 billion jump over the same quarter last year. That was when the gap between the United States and California was $1.25 per gallon. Now that difference is $2.61.

Third-quarter profit reports due out at the end of this month will likely reveal even greater profits on the latest price spikes. That’s because, historically, every gas price spike shows up as a profits spike, too.

Oil refiners know the less gasoline they make the more money they make.

It’s indecent for oil refiners to make between $2 and $3 per gallon more than anywhere else when Californians must choose between food and filling up their tanks to get to work.

Ever since I was first appointed to represent the California Assembly on the California Attorney General’s Gas Pricing Taskforce in 2000, the industry excuses haven’t changed much: Oil refiners have to make a special California blend of gasoline. Maintenance requires multiple refinery shutdowns. Inventories are short because no pipelines lead into the state. It’s hard to import the gasoline because few places make it.

The Legislature should focus on what matters most – the profits reported afterwards. California now has the tools to monitor refiners per-gallon profits monthly and take back the excess.

Newsom recently signed the California Oil Refinery Cost Disclosure Act, SB 1322, which provides the basis to assess an appropriate windfall profit tax.

Beginning in January, California oil refiners will have to publish their actual crude oil costs and refining margins monthly. This data will show how much oil refiners are making above their baseline profits historically.

California’s environmental rules and taxes add 69 cents per gallon to the cost of California fuel. When oil refiners charge us $2.50 more per gallon, they have some explaining to do.

In the end, all that matters is the math. Setting a baseline gross refining margin based on historical precedent of 50 cents per gallon would allow the state to recoup profits above that baseline and return that money to the state’s consumers.

Only the excess profits from oil company manipulation would get taxed, so not a dime would be passed to drivers. Setting a permanent cap on oil refiners’ per-gallon profits is the only thing that will rein in the gouging.

Jamie Court is president of the nonprofit public interest group Consumer Watchdog.

Consumer Watchdog
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