California's Attacks on Big Oil Will Only Drive More People Out of the State
At least until all the gasoline is gone.
Novelist Ayn Rand's tales about the havoc that assorted government planners and "looters" wreak on society are a bit turgid and overwrought for my tastes, but I enjoy re-reading the conclusion of Atlas Shrugged. After bureaucrats tighten their control over the economy, entrepreneurs quietly exit society. The entire socialist edifice comes crashing down—quite spectacularly, with the collapse of the economically crucial Taggart Bridge.
If you haven't read the book, I recommend CliffsNotes. It will spare slogging through John Galt's 60-page radio speech. Or skip the voluminous book altogether and watch the state of California. The latest data shows that wealthy people—the ones who fund our highly progressive, capital-gains-dependent budget—have now joined the exodus. "Perhaps most striking, California is now losing higher-income households," the Public Policy Institute of California recently reported.
Lower- and middle-income earners have long been fleeing to states where they can afford a house or operate a small business without having to deal with our meddlesome planners. High earners have largely stayed put given they can afford the costs. But the great climate and scenery only go so far. Anyone who watched a Capitol press conference this week might head to Galt's Gulch (where Rand's entrepreneurs fled)—or look for a realtor in Idaho or Texas.
On Monday, Gov. Gavin Newsom signed a new gas-price "accountability" measure that lawmakers rushed through the Legislature. Flanked by lawmakers and Attorney General Rob Bonta, Newsom vowed to end price gouging by the nation's oil companies: "California took on Big Oil and won. We're not only protecting families; we're also loosening the vice grip Big Oil had on our politics for the last 100 years."
Specifically, the legislation, authored by Sen. Nancy Skinner (D–Berkeley), grants the California Energy Commission broad new powers to monitor gasoline pricing. It requires oil companies to provide extensive new supply chain data. The law lets bureaucrats determine the proper profit margins for oil companies and "establish a penalty for exceeding the maximum gross gasoline refining margin."
Newsom originally conceived of a windfall-profits tax—similar to the disastrous policy President Jimmy Carter implemented. That tax slowed domestic oil production and made the United States increasingly dependent on imports from the Middle East. The final California law doesn't repeat that stupidity, but it imposes new costs on oil companies. It will discourage oil production and lead to higher gas prices.
Consider the official support argument offered from a coalition of environmental and social-justice groups. They argued the law will help the state "plan for and monitor progress toward the…transition away from petroleum fuels." It's part of a push to drive away the oil industry, which will—by design—reduce oil production. Leave it to California lawmakers to address high gas prices by purposefully reducing supply and increasing them further.
California does indeed have the highest gasoline prices in the nation. Those prices have fallen quite a bit in recent months to $4.82 a gallon. That's still $1.38 a gallon higher than the national average—and $1.70 a gallon higher than in Texas. Oil companies are national operations, so a normal person might wonder why those companies are so much greedier in California than they are elsewhere.
The answer isn't hard to find. For starters, California has the highest gas taxes in the nation. (We also get the least bang for our buck given the state of our freeways, but that's a separate issue.) Those higher taxes instantly make our gasoline 48 cents a gallon higher than in Texas. There's still a pricing gap, but despite officials' blathering about a "mystery gas surcharge" here in California, it's not a mystery at all.
"California's tough environmental rules mandate that gasoline sold within the state be produced according to strict formulas that reduce pollution," per a Los Angeles Times analysis. "But the gas is more expensive and difficult to produce than dirtier fuel sold elsewhere. Few refineries outside the state are equipped to produce it." The report adds the number of California refineries is plummeting and our state has no interstate pipelines, thus forcing us to rely on costlier forms of transportation.
All of those supply-restricting measures are the direct result of public policy choices. Our state has chosen to require that special formulation. California has declared as one of its prime climate-change priorities ending the state's reliance on fossil fuels. If you were an oil company, would you invest in new capacity in a state that wants you to leave? Regulators would never allow interstate pipelines.
California's progressive leaders have imposed the policies that led to our high gas prices. Instead of doing anything about them, they are bloviating about price gouging. I don't know whether many oil executives are fans of Rand, but I wouldn't blame them for quietly pulling out of California and watching our economic edifice collapse from their homes in Houston.
This column was first published in The Orange County Register.