Gov. Gavin Newsom’s proposal to penalize oil industry profits presents an early high-stakes issue for the new Legislature. It's the most diverse legislature in California history, with about one-third of legislators new to Sacramento.
But the preliminary bill language includes no mention of a tax. Instead, the fines that oil refiners could be charged for exceeding the profit margin cap are considered administrative penalties. That allows the Legislature to pass the measure with a simple majority, rather than the two-thirds vote required for taxes.“That’s not part of my consciousness.
Severin Borenstein, an energy economist at UC Berkeley, agreed that the financial penalties could have a stronger deterrent effect than a tax because oil companies might be more motivated to hold prices down to not appear like scofflaws. But he was doubtful that limiting refiners’ profits would consistently lead to lower prices at the pump.
“That doesn’t require the gas station owners to reduce their price,” said Borenstein, a former chairperson of the California Energy Commission’s Petroleum Market Advisory Committee. If there’s a limited supply of gas, he said, “why wouldn’t they charge a higher price?”the most diverse in California historyNew state Assemblymember Gail Pellerin, a Santa Cruz County Democrat, celebrates after being sworn in during the opening session of the California Legislature in Sacramento on Dec. 5, 2022.
Though more than three-quarters of both legislative chambers is now composed of Democrats, the price gouging penalty appears likely to be a heavy lift for the governor, especially as the oil industry and Republican opponents work to spin it as a tax by another name.
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