California faces a self-created oil and gas crisis. Lawmakers should consider these steps next
California lawmakers just passed legislation to support the oil and gas industry in an attempt to lower costs for consumers. Below, a business professor says the package is overdue but also a piecemeal approach for such a critical problem. The opposing view: an environmental scholar argues that making it easier to drill oil won’t lower gas prices. Guest Commentary written by Michael Mische Michael Mische is an associate professor at the University of Southern California’s Marshall School of Business. Time matters, and California is running out of it. Lawmakers in Sacramento must act to address the state’s fuel and affordability crises. Since 2001, California gas prices have increased 162%. Today, we pay about 43% more than the national average, and that figure would likely be far higher if not for record-high domestic oil production. That tailwind unfortunately won’t last. While crude oil prices have fallen 19% since January, California costs and taxes have increased, now accounting for approximately 26% of the retail price of gasoline. And with the highest state excise tax per gallon in the nation, California makes several times more than a typical retailer for the same gallon of gas sold. Platitudes and rhetoric aside, the truth is California is staring at a near-term gasoline shortfall, driven largely by the pending closure of two refineries, the highest operating costs in the nation and decades of falling in-state production. What these fuel supply challenges have not resulted in is a gigantic drop in demand. This has and will continue to lead to a greater dependence on foreign fuel, greater emissions, increased exposure to global volatility, and ultimately an increase in the price Californians pay for the fuel that powers the world’s fourth-largest economy. We face a choice: On one side, the status quo assumes California’s economy can run without petroleum any time soon. On the other is a growing recognition that affordable energy is essential to economic stability and national security. After spending years demonizing the oil and gas industry and accusing California’s refiners of ripping off consumers, Gov. Gavin Newsom now admits that “We are all the beneficiaries of oil and gas,” under severe pressure to avert a full-blown energy crisis. At the tail end of the legislative session last week, legislators and the governor reached an agreement to increase in-state crude oil production. If we care about our climate goals, we must also care about where our gasoline comes from. In 1982, California imported around 6% of its oil needs from foreign sources; today, the Golden State imports around 64% from various petrostates. Shipping finished fuel thousands of miles can mean crude sourced from regimes with higher emissions and weaker oversight than California. That’s more pollution, less transparency, less leverage for the U.S. — and yes, higher prices at the pump. None of this is necessary, and most of this is self-created. California has one of the most underused oil reserves in the nation and some the most advanced technologies, best-trained workforces and safest producers in the world. The Newsom administration’s recent moves to ease the bureaucratic red tape and permitting challenges that have forced us to import two-thirds of all our crude quietly admits as much. We should use the resources we have today while we continue to build the clean energy system of tomorrow. We also need to dial back the regulatory cost stack. On July 1, the state raised the gas excise tax and updated the Low Carbon Fuel Standard, the state’s greenhouse gas reduction program. Layer on infrastructure costs, amortization, new storage mandates, refinery retrofits for changing crude blends and the lagging effects of the LCFS credit. If we care about affordability, let’s price it honestly and show the math. Finally, equity must be both fiscally and morally sound. California’s gas tax — roughly 61 cents per gallon — pays for the roads we all use. Meanwhile, EV drivers don’t pay the tax but still use the same infrastructure. As EV adoption grows, the revenue gap widens. In a state that prides itself on equity, a fair solution is to stop subsidizing EV owners on the shoulders of other drivers and adopt a more equitable mileage-based road fee for EVs that accounts for miles driven and vehicle weight, which better reflects road wear. Newsom’s long-overdue acknowledgement of a pending gasoline and price crisis — together with the Legislature’s last-minute actions — are a start but also a piecemeal approach to addressing a critical problem. As a next step, the Legislature should consider the repeal of regulations limiting production and pipeline use in more counties, assess the powers of agency bureaucrats who force higher prices on the backs of Californians, and a new regulatory strategy that will provide a more hospitable business environment for refiners and producers. That ultimately means greater fuel and price security for California consumers.
Newsom’s long-overdue acknowledgement of a pending gasoline crisis — together with the Legislature’s last-minute actions — are a start, but also a piecemeal approach to addressing a critical problem.
California lawmakers just passed legislation to support the oil and gas industry in an attempt to lower costs for consumers. Below, a business professor says the package is overdue but also a piecemeal approach for such a critical problem. The opposing view: an environmental scholar argues that making it easier to drill oil won’t lower gas prices.
Guest Commentary written by
Michael Mische
Michael Mische is an associate professor at the University of Southern California’s Marshall School of Business.
Time matters, and California is running out of it. Lawmakers in Sacramento must act to address the state’s fuel and affordability crises.
Since 2001, California gas prices have increased 162%. Today, we pay about 43% more than the national average, and that figure would likely be far higher if not for record-high domestic oil production.
That tailwind unfortunately won’t last. While crude oil prices have fallen 19% since January, California costs and taxes have increased, now accounting for approximately 26% of the retail price of gasoline. And with the highest state excise tax per gallon in the nation, California makes several times more than a typical retailer for the same gallon of gas sold.
Platitudes and rhetoric aside, the truth is California is staring at a near-term gasoline shortfall, driven largely by the pending closure of two refineries, the highest operating costs in the nation and decades of falling in-state production. What these fuel supply challenges have not resulted in is a gigantic drop in demand. This has and will continue to lead to a greater dependence on foreign fuel, greater emissions, increased exposure to global volatility, and ultimately an increase in the price Californians pay for the fuel that powers the world’s fourth-largest economy.
We face a choice: On one side, the status quo assumes California’s economy can run without petroleum any time soon. On the other is a growing recognition that affordable energy is essential to economic stability and national security.
After spending years demonizing the oil and gas industry and accusing California’s refiners of ripping off consumers, Gov. Gavin Newsom now admits that “We are all the beneficiaries of oil and gas,” under severe pressure to avert a full-blown energy crisis. At the tail end of the legislative session last week, legislators and the governor reached an agreement to increase in-state crude oil production.
If we care about our climate goals, we must also care about where our gasoline comes from. In 1982, California imported around 6% of its oil needs from foreign sources; today, the Golden State imports around 64% from various petrostates. Shipping finished fuel thousands of miles can mean crude sourced from regimes with higher emissions and weaker oversight than California.
That’s more pollution, less transparency, less leverage for the U.S. — and yes, higher prices at the pump.
None of this is necessary, and most of this is self-created. California has one of the most underused oil reserves in the nation and some the most advanced technologies, best-trained workforces and safest producers in the world. The Newsom administration’s recent moves to ease the bureaucratic red tape and permitting challenges that have forced us to import two-thirds of all our crude quietly admits as much.
We should use the resources we have today while we continue to build the clean energy system of tomorrow.
We also need to dial back the regulatory cost stack. On July 1, the state raised the gas excise tax and updated the Low Carbon Fuel Standard, the state’s greenhouse gas reduction program. Layer on infrastructure costs, amortization, new storage mandates, refinery retrofits for changing crude blends and the lagging effects of the LCFS credit. If we care about affordability, let’s price it honestly and show the math.
Finally, equity must be both fiscally and morally sound. California’s gas tax — roughly 61 cents per gallon — pays for the roads we all use. Meanwhile, EV drivers don’t pay the tax but still use the same infrastructure. As EV adoption grows, the revenue gap widens. In a state that prides itself on equity, a fair solution is to stop subsidizing EV owners on the shoulders of other drivers and adopt a more equitable mileage-based road fee for EVs that accounts for miles driven and vehicle weight, which better reflects road wear.
Newsom’s long-overdue acknowledgement of a pending gasoline and price crisis — together with the Legislature’s last-minute actions — are a start but also a piecemeal approach to addressing a critical problem.
As a next step, the Legislature should consider the repeal of regulations limiting production and pipeline use in more counties, assess the powers of agency bureaucrats who force higher prices on the backs of Californians, and a new regulatory strategy that will provide a more hospitable business environment for refiners and producers.
That ultimately means greater fuel and price security for California consumers.