California has become the first state to pass a law to penalize oil companies for profiting over unregulated gas price hikes. The new legislation, signed into law by Gov. Gavin Newsom, seeks to protect consumers from unfair and excessive increases in gas prices during times of crisis or emergency.
Under the new law, oil companies could face steep fines and penalties for price gouging, which has long been frustrating for Californians who have faced skyrocketing gas prices in recent years. The move is being hailed as a significant victory for consumers and a step forward in regulating the petroleum industry.
Nation’s First Penalty for “Big Oil”
Governor Newsom and Democrat lawmakers agreed that it’s within the California Energy Commission’s jurisdiction whether to penalize oil companies for price gouging. However, the real focus of the bill lies in the extensive new information that oil companies would be required to disclose to state regulators regarding their pricing practices.
Under the new legislation, oil companies should report a vast amount of data to a newly created state agency tasked with monitoring and investigating the petroleum market. Most of this data will still be confidential, and the agency has the power to subpoena oil company executives if necessary.
The commission would use this agency’s findings and input from a panel of experts to determine whether oil companies should face penalties for their profits and, if so, how much those penalties should be.
By requiring greater transparency and accountability from oil companies, the state hopes to protect consumers from unfair and excessive price hikes in times of crisis or emergency. The California law, the first of its kind in the United States, is seen as a significant step forward in the fight against the highly influential industry of “Big Oil.”
Newsom vs. the Oil Industry
Gov. Newsom is making a strong political statement by making it his mission to challenge the oil industry. In December of last year, he tried to introduce a new tax on oil company profits since the average gas price in California reached a record high of $6.44 per gallon.
However, other Democrat lawmakers pointed out the additional taxes might cause another price increase. They proceeded with the current bill instead to stop gas price gouging.
Path to Carbon Neutrality
Since the late 1980s, a combination of exhausted supplies and a shift in the state’s policy priorities has led to a steady decline in oil production. State law mandates that California become carbon neutral by 2045—requiring the Gold Coast to remove as many carbon emissions from the atmosphere as it emits. To achieve this goal, the state has plans to reduce its demand for liquid petroleum by 94% by 2045.
The California Air Resources Board also approved the Advanced Clean Cars II rule. This hallmark decision sets the state on a trajectory for rapid growth in the zero-emission car, pickup truck, and SUV market.
Under the new regulation, a year-by-year plan is set to ensure that 100% of new cars and light trucks sold in California will be zero-emission vehicles, including plug-in hybrid electric vehicles, by 2035. This move aligns with the light-duty vehicle goals outlined in Governor Newsom’s Executive Order N-79-20, which has been realized and codified.
Oil Lobbying
Although considered a big blow, the new law in California won’t easily topple one of the ‘Goliath’ industries. Reports have shown that Western States Petroleum Association, the leading oil industry lobbying group, spent a whopping $11.7 million during the 2021-2022 legislative session to ‘support’ lawmakers.
Following close behind was Chevron, which spent $8.6 million, according to state campaign finance filings. The next highest spender was the California Teachers Association, which spent $7.1 million. The industry also made significant campaign contributions in the 2022 election, supporting both Democrats and Republicans.
With over 25% of the 120 seats in the Legislature occupied by newly elected members, the oil industry’s influence is expected to remain an issue in California’s political landscape.
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