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Abandoning Big Oil tax, Newsom pushes for more oversight

Abandoning a windfall tax strategy to penalize Big Oil's enormous profits for price gouging, Gavin Newsom says California needs an oversight agency to hold oil companies accountable.

SACRAMENTO, Calif. (CN) — California Governor Gavin Newsom is pursuing a new tactic in his war on Big Oil — an oversight body to hold petroleum companies accountable, abandoning his attempt to tax those who raised gas prices last fall. 

This past September the governor called a special legislative session to discuss levying a windfall tax on oil companies that profited while people paid record prices for gasoline. He gave lawmakers an outline of his plan to cap profits during the first special session.

Gas prices reached a high of $6.42 per gallon last fall, a record $2.61 more than the national average, while crude oil prices dropped and state taxes and fees remained unchanged. Newsom’s office said this spike resulted in record refiner profits of $63 billion in 90 days, “disproportionately affecting low- and middle-income families, driving inflation higher and making it harder for California families to make ends meet.”

But after only one legislative session in three months, Newsom has decided to give up trying to get lawmakers to set a cap on Big Oil profits. He is instead asking them to increase transparency and oversight over the oil industry, giving responsibility to the state Energy Commission — the members of which he has appointed or reappointed. 

Newsom and Attorney General Rob Bonta met with leaders from hundreds of organizations, stakeholders and local leaders this week to unveil their new proposal.

The governor and Bonta want to create a new independent watchdog within the California Energy Commission, which monitors California’s petroleum market. The watchdog would have access to new information refiners must report, with subpoena power to compel production of other data and records to find patterns of misconduct or price manipulation that would be referred to Bonta’s office.

The commission would also have authority to set a price-gouging penalty via a public rulemaking process, and establish a penalty structure that deters excessive pricing by imposing a civil penalty on refiners that charge more than a maximum allowable margin on gasoline.

Newsom said his proposal also enhances the state’s authority to analyze why California has seen unexplained higher gas prices since 2015 — sometimes referred to as the “mystery gasoline surcharge” — and enforce Big Oil’s reporting requirements on the oil industry to bring greater transparency to California’s petroleum market.

“What we’re asking for is simple: transparency and accountability to drive the oil industry out of the shadows,” Newsom said. “Now it’s time to choose whether to stand with California families or with Big Oil in our fight to make them play by the rules. ” 

Assembly Republican leader James Gallagher of Yuba City, who counts gas companies like Chevron and Valero among his major campaign contributors according to nonprofit and nonpartisan research organization Vote Smart, called Newsom’s announcement a win for his side. 

“No matter how many sham investigations he calls for, no matter what kind of ‘penalty’ he comes up with, there’s one indisputable fact — California drivers pay more because of taxes, fees and regulations imposed by Newsom and his extreme liberal allies,” Gallagher said on Twitter. 

The California Assembly Republican caucus predicted doom for California drivers. “If Assembly Dems give unelected bureaucrats the authority to impose this new tax, they will be responsible for the shortages, rationing, gas lines and price spikes that come with it," the caucus tweeted.

Others who spoke with the governor said an oversight body is the right move to enforce transparency from Big Oil.

"The emphasis of this proposal on creating an independent division that will investigate competition in the California gasoline market, and find the source of the mystery gasoline surcharge, is exactly what we need," said Severin Borenstein, economist at University of California Berkeley. 

Amee Raval of the Asian Pacific Environmental Network pointed to the fact that refineries tend to be in lower-income or minority neighborhoods. “For generations, Big Oil has profited at the expense of environmental justice communities: poisoning our air, land, water, and bodies with massive refineries and backyard oil wells," Raval said. "We’re glad to see our elected officials in Sacramento finally stand up to Big Oil.”

And environmentalists praised Newsom's plans.

“The actions of the oil industry to line their pockets and double their profit margins has forced Californians on fixed incomes to make unconscionable budget decisions, going deeper into debt and sacrificing essential goods or medical care, just to afford their commute or get their kids to school," said Brandon Dawson, Sierra Club California director. "The price-gouging penalty is a long-overdue tool that to prevent oil refiners from running roughshod over our communities.”

Kassie Siegel, director of the Center for Biological Diversity's Climate Law Institute, said the plan should bring about the death rattle for the fossil fuels industry.

“This bill puts us one step closer to holding the price-gouging oil industry accountable for its shameless greed,” Siegel said. “This important legislation should be part of an all-out push to move the state to clean, renewable energy and off oil and gas. A rapid phaseout of dirty fossil fuels is the best way to protect our health and climate, and to free Californians from volatile oil prices once and for all.”

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