Will State Gas Prices Soar In Protest Of 2015 Environmental Law?

Published on

Jamie Court calls it the “January surprise.”

Court, president of the Consumer Watchdog nonprofit, is convinced oil companies may try to artificially inflate California’s gasoline prices in January.

The reason? Come the new year, California’s cap-and-trade system for reining in the greenhouse gases behind global warming will expand to cover transportation fuels sold in the state. In ads and on websites, the oil industry and its allies have spent months calling the move a “hidden gas tax” that will send California’s gas prices soaring as much as 79 cents per gallon. Independent analysts expect the change will boost prices only about 10 cents.

“There is no new gas tax, so how could you run a public opinion campaign about the gas tax if people don’t see higher gas prices?” said Court, a longtime critic of the industry. “The endgame here has to be raising prices as a warning shot to other states not to try this.”

And Court isn’t alone. Consumers Union, the policy arm of Consumer Reports, sent California officials a letter last week warning that oil companies might try to manufacture a price increase to scuttle cap and trade.

Oil industry representatives call that idea nonsense, noting that the state has repeatedly investigated gasoline price spikes without finding illegal behavior. Instead, they say, state officials and environmentalists have been trying to hide the impact that California’s fight against climate change will have on drivers.

“For better or worse, consumers in California now understand that these policies will directly affect their pocketbooks, and that hasn’t been the case in the past,” said Tupper Hull, spokesman for the Western States Petroleum Association. “There has been an effort to mask the effects of these policies.”

Legitimate worry?

The suggestion that oil companies might manipulate prices to kill a regulation they don’t like may sound like an environmentalist’s conspiracy theory. But last week, the California Energy Commission appointed members to a new Petroleum Market Advisory Committee that will monitor how the cap-and-trade system and other environmental regulations affect fuel prices. The panel includes several prominent energy economists — as well as the head of antitrust operations in the state attorney general’s office.

“This committee has people with the ability to really examine and understand what’s going on and not just listen to the statements by the protagonists in this,” said James Sweeney, the panel’s chairman and the director of Stanford University’s Precourt Energy Efficiency Center.

Both Sweeney and one of the committee’s other members — UC Berkeley energy economist Severin Borenstein — expect that cap and trade will boost California gasoline prices by roughly a dime per gallon. The committee has no subpoena power, but it will have access to the voluminous data that the Energy Commission routinely collects from California refineries about their output, operations and reserves.

“If the effects turn out to be very, very different from what we theoretically think they should be, then we’d want to understand much more deeply what’s going on,” Sweeney said.

Oil companies have repeatedly tried to block or delay the inclusion of fuels under the cap-and-trade system. The system, launched in 2012, sets a limit on California’s greenhouse gas emissions and lets companies trade permits to emit carbon dioxide and other heat-trapping gases.

Legislation from Assemblyman Henry Perea, D-Fresno, to delay bringing fuels under the cap died this year in Sacramento. But the oil industry also launched a public relations campaign to convince Californians that the coming shift would bring economic disaster.

The Western States Petroleum Association coordinated with — and in some cases, funded — a host of little-known groups warning of a “hidden gas tax” that would hit Californians in 2015. Visit the website of the California Drivers Alliance, for example, and the first page states that gas prices will soon rise between 16 and 76 cents per gallon. That figure is based on a state-commissioned study written in 2010, when the cap-and-trade program was still taking shape.

It is, Court and other critics say, a classic “Astroturf campaign,” in which a powerful industry sets up organizations that masquerade as grass-roots efforts. They note that some of the groups — such as Californians for Affordable & Reliable Energy, Fueling California and the AB 32 Implementation Group — share many of the same members, including the Petroleum Association.

Defending groups

Hull insists that these aren’t front groups for the association. The Drivers Alliance, for example, counts many local officials and small businesses among its members.

“Their interests are the same as ours,” he said.

Californians typically pay the highest gasoline prices in the continental United States. In part, that’s the result of steep taxes, more than 68 cents per gallon, when California and federal taxes are added together.

It’s also due to the unique, isolated nature of the state’s gasoline market.

California uses its own, pollution-fighting gasoline blends not found in any other state. As a result, the vast majority of gasoline sold in California comes from 14 refineries within the state. And those refineries don’t keep much fuel in storage — typically about 12 days’ worth of production, according to the Energy Commission. So if fires or equipment failures strike more than one refinery at a time, prices spike.

Court fears that an oil company could decide to manufacture a price increase in January by taking one or two refineries down for unplanned maintenance. Or they could lower their stored supplies, so that any genuine problem would mean higher prices.

“You can shut down a single refinery and jack up the price of gasoline by a quarter overnight,” Court said. “If oil companies are bold enough or brazen enough, they’ll try it.”

Claims of market manipulation have often followed price spikes in California, sometimes prompting government investigations. None has found illegal behavior.

“This is an industry that has been subjected to extraordinary scrutiny, and has been investigated dozens of times in the last 20 years, and has always been found to operate with in the law,” Hull said. “We’ll let our record stand.”

He said the Petroleum Association is comfortable with the new state committee that will be keeping an eye on gas prices in 2015. “There are people on there who, we think, have very informed views of how these markets work and should work,” Hull said.

David R. Baker is a San Francisco Chronicle staff writer. E-mail: [email protected] Twitter: @DavidBakerSF

Latest Videos

Latest Releases

In The News

Latest Report

Support Consumer Watchdog

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More Releases