California oil companies churning out gasoline have gouged Californians for billions of dollars at the pump for years. That’s why Californians that already pay among the highest prices for gas in the nation should not be stuck with a $52 billion tab for fixing the state’s roads.
Instead, lawmakers should vote no on Governor Jerry Brown’s SB 1 legislation until it puts a Gouge Gap Tax on oil refiners instead of taxing consumers at the pump.
Here’s how. We should tax refiners’ profit margins. Those margins are calculated by subtracting the cost of crude going into the refinery from the price refiners charge on the gasoline coming out.
All regulators have to do is compare reported California profit margins with typical profit margins elsewhere in the US. The difference is the “gouge gap.”
In 2015 alone, Californians paid $10 billion more for gas at the pump compared to the rest of the country. Refiners fleeced consumers who at times paid $1.50 more a gallon at the pump than everyone else. Tesoro made $1.9 billion off California refining, a record high. Valero generated $852 million, tripling its average over five years. California consumers generated a sizeable chunk of Chevron’s refining profits of $3.1 billion since half its gasoline is produced right here.
Oil companies are shameless about ripping off consumers—taking advantage of offline refineries to jack up prices, exporting gas during shortages, while keeping less inventory than needed on hand.
In 2015, they charged their branded stations a record amount more than they charged independent stations for the same gasoline--simply because they could.
The state should take back some of those ill-gotten gains and use it for the infrastructure pounded by cars and trucks burning the climate-warming products that refiners sell.
Establishing a tax rate on every barrel of finished gasoline based on the gouge gap would generate much needed money to maintain the state’s transportation system. For example, California oil refiners earned an average of 49.3 cents on a gallon of gasoline between 1999 and 2014, according to the California Energy Commission. But in 2015, the companies made an average of $1.17 a gallon.
That difference represents a lot of taxable windfall profit.
If the state just increases taxes collected at the pump, refiners will make consumers pay them all. But an annual tax on outsized refinery profit margins based on every gallon of finished gasoline sold would prove tough to pass along. Californians could get a portion of the tax back as a credit on their state taxes, or on their vehicle registration fees.
Governor Brown has earned a reputation as a fiscal reformer due to his backing of ballot measures raising taxes. In no small part, oil companies helped him. Occidental Petroleum, for example, contributed $500,000 to his Prop 30 tax-raising measure.
For his part, Brown fired two oil wellhead regulators for getting tough on safety, and Occidental got a permit to frack in Kern without required reviews. Brown bailed on an oil severance tax, and any measures to take on the price gouging in 2015, no doubt because of his support from the oil industry.
Jerry Brown is not likely to come up with the idea of paying for roads out of the oil industry's windfall taxes. That is why the legislature should stop the current proposal, step up, and do the right thing: make oil companies pay with their ill-gotten gains.
It’s time for oil refiners to stop getting a free ride in California at consumers’ expense. It’s only fair.