California Gov. Gavin Newsom continued his campaign to create a new tax for oil companies Oct. 25, targeting Valero for increasing its earnings during a time when the state’s consumers paid record prices at the pump.
The Texas-based oil company released its third-quarter earnings report showing a net income earning of $2.8 billion from July to September, up from $463 million for the same time last year.
In response to the report, Newsom said oil companies were taking advantage of consumers by making profits.
“Big oil is ripping Californians off, hiking gas prices and making record profits. As Valero jacked up their profits by over 500 [percent] in just a year, Californians were paying for it at the pump instead of passing down those savings,” Newsom said in a release. “That’s why we’re taking action to implement a price gouging penalty to put these profits back in the pockets of Californians.”
Valero operates two refineries in California located in Benicia and Wilmington. The plants were among four of the state’s refineries forced to partially shut down this summer for maintenance, contributing to a supply shortage in the state that caused gas prices to skyrocket to new records in September.
The company did not respond to requests for comment but said in its quarterly report that worldwide demand was higher than pre-pandemic levels.
Windfall Tax Proposal
Newsom called for a special session of the California Legislature to enact a windfall profit tax on oil companies. The session is set for Dec. 5.Though details of Newsom’s tax proposal are unclear, the tax is expected to target oil companies that make a profit in the state and give the tax revenue back to California residents.
Nonprofit advocacy group Consumer Watchdog supports the governor’s proposal, claiming the state’s five oil refiners made up to 10-times more profit off West Coast operations from April to June than they did the previous year.
“Californians have been an ATM for oil refiners for too long and now it’s time for the legislature to push back on these outrageous profits,” Jamie Court, president of Consumer Watchdog, wrote in a statement.
However, one industry expert said the additional state tax could end up costing consumers more.
“Generally, what happens is taxes get passed along in one form or another,” David Hackett, a fuels industry expert with Stillwater Associates and member of the California Energy Commission’s Petroleum Market Advisory Committee, told The Epoch Times. “In an inflationary environment like this, the governor wants to add more taxes, which will just add to the inflation and make it harder for regular people.”
California’s record gas prices this year have a lot to do with the COVID-19 pandemic, Hackett said.
“It’s another COVID hangover,” he said.
In March 2020, refineries cut back. Many plants laid off employees and one closed permanently in Martinez, California. The setbacks put off maintenance projects and lost money during the pandemic. Then, as the plants started to become profitable, they scheduled maintenance for the spring months of this year. But that was when the Ukrainian war began, Hackett said.
Instead of resuming maintenance plans, the refineries decided to continue running. By the fall, the plants were getting “pretty bad,” he said. But an unexpected and lengthy heatwave hit the state causing heat-sensitive refineries to throttle back because of the high temperatures.
California Prices Remain High
California gas prices remain the highest in the nation, partially due to state gas taxes and added regulatory taxes that total about $1.28 per gallon. On Oct. 26, the average cost for a gallon of regular gas in the state was $5.68, the American Automobile Association reported.Congress Responds
California Rep. Kim Young, a Republican, has asked Newsom to suspend state gas taxes in response to higher gas prices, but has since been unsuccessful.“Californians are paying nearly $6 for a gallon of gas across my district plus $0.54 more per gallon from the CA gas tax. I’ve urged Gov. Newsom for months to suspend the gas tax & am pushing back against the Biden admin’s efforts to make CA energy policies the national normal,” Young wrote on Twitter Oct. 22.
Other members of Congress, though, favored a national windfall profits tax and introduced the legislation earlier this year.
In March, California Rep. Ro Khanna, a Democrat, introduced the Big Oil Profits Tax bill in the House, which would impose an excise tax on the profits of crude oil on companies that extracted and imported more than 300,000 barrels of taxable crude oil in 2019, or who did the same in the current calendar quarter.
The bill requires the federal government to give the taxes collected back to taxpayers. A bill mirroring this legislation was introduced at the same time in the U.S. Senate by Rhode Island Sen. Sheldon Whitehouse, a Democrat.
Internationally, the United Kingdom adopted a temporary windfall profits tax on oil companies in the summer. The tax will apply to profits of companies extracting oil and gas in the U.K. but not on those generating electricity from nuclear or wind sources. The treasury expects it to raise about 5 billion British pounds in its first year.
