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California’s Bill To Penalize Oil Firms For Excess Profits Has Stalled

A proposed bill in California to introduce penalties on the excess profits of oil companies is not making advances in the state legislature and even some Democrats are questioning its implementation and the possible benefits for consumers.   

Last year, as gasoline prices hit records in the United States, and were much higher in California than in other states, Governor Gavin Newsom started calling for a windfall tax on oil companies that would go directly back to California taxpayers, who, the governor says, are getting ripped off by Big Oil.  

Later in 2022, Governor Newsom slammed Valero for ripping off Californians by selling fuels at higher prices, and said “That’s why we’re taking action to implement a price gouging penalty to put these profits back in the pockets of Californians.”  

The bill would need a majority in the State Senate to pass, but even several Democrats in the legislature are skeptical of how the “price gouging penalty” would work and how it would return money to the pockets of Californians.

During the first public hearing on the issue at the State Senate on Wednesday, State Senator Bill Dodd (D-Napa) wanted to know how California would stop refiners from simply selling their fuels outside California to avoid a possible penalty, the AP reports.

Other major uncertainties about the “price gouging penalty” also emerged during the hearing, including what level of profit should be set to trigger such a penalty and how exactly the money would go back to Californians.

Following Wednesday’s hearing, Governor Newsom said that “oil industry lobbyists once again stonewalled on why gas prices soared to record highs last year as oil companies posted record profits.”

The Western States Petroleum Association (WSPA) said that the bill “misguidedly focuses on profits, rather than the root cause of price spikes - a lack of supply. The way to provide relief at the pump is to increase a reliable and safe supply.”

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WSPA President and CEO Catherine Reheis-Boyd reminded the California legislation that potential harms from penalties could include higher reliance on more expensive and uncertain imports, job losses, reduction of gasoline supply, and reduced funding for schools and local governments. 

By Tsvetana Paraskova for Oilprice.com

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