With climate change exacerbating heat waves, fires, and floods, California, the seventh largest oil-producing state in the US, is gearing up for a battle with the oil companies situated within its borders. The clash is set to unfold in the state legislature, at the polls, and in communities across Southern California. In late August, California will appoint its first oil czar, who will take charge of a new agency responsible for overseeing the industry. Additionally, a new state law will require oil companies to disclose their profit margins to the government, potentially subjecting them to penalties if it is found that they are overcharging consumers at the pump. By mid-October, it will become clear whether any of the Democrats’ proposed bills, aimed at compelling oil companies and other major businesses to disclose their environmental impact, will be passed into law. So far, however, oil companies have largely emerged victorious in Sacramento this legislative session.
Later this year, state regulators are expected to begin awarding contracts to plug inactive wells that oil companies abandoned years ago, including 30 orphan wells in Los Angeles and Orange counties. In response, a coalition of environmental groups has called on regulators to hold oil companies accountable for the associated risks and costs. In 2024, voters will have the final say on whether to regulate oil drilling throughout the state, with environmental groups having filed an initiative to counter an industry-backed effort that has already qualified for the 2024 ballot. Consequently, it comes as no surprise that financial reports indicate that oil interests, led by Chevron and the Western States Petroleum Association, are projected to exceed last year’s $18 million spent on influencing California’s energy and climate policies. Despite having a declining number of registered lobbyists, fewer permits for new wells, and waning public support, oil interests may even establish a new spending record for a two-year session.
One imminent development is the possibility of gas gouging penalties being imposed. Just as gas prices are increasing, California’s newly-appointed oil czar, who is responsible for safeguarding against price gouging, will assume office. Governor Gavin Newsom signed the country’s first gas price gouging bill in March, following record-setting prices at California’s gas pumps. The bill, which took effect in June, established the Division of Petroleum Market Oversight to monitor gas prices and authorize penalties against companies found to be inflating profits. On August 1, Newsom announced the appointment of Tai Milder, an antitrust prosecutor at the U.S. Department of Justice, to head the new agency. However, before Milder and his team can impose penalties on oil companies they believe are driving up prices, they first need to study the potential effects. Lawmakers rejected Newsom’s proposal for a special tax on gas companies last year due to concerns that it may reduce oil production in California and lead to higher prices in the future. Before regulators can assess how penalties might impact the market, they must obtain profit margin information from oil companies. Historic profit data from the past decade is expected to be submitted by September 30. Meanwhile, although daily reports on sales and imports have been required from oil refiners since July 26, information regarding daily sales numbers and company profit margins is deemed confidential. Currently, the average price of regular gas in California has surpassed $5 per gallon and is $1.26 higher than the national average, with gas taxes accounting for just 54 cents of the difference.
Efforts in the Sacramento legislature to rein in the oil industry have yielded mixed results. Several bills proposing regulations have been either defeated or postponed, while others are still pending. Notably, Senate Bill 556, which aimed to hold oil companies accountable for health conditions linked to drilling, and S.B. 252, which sought to cease investments in major fossil fuel companies, have been rejected. However, three bills, including S.B. 253, which requires the disclosure of greenhouse gas inventories by companies with annual revenues exceeding $1 billion, and S.B. 261, which mandates disclosure of climate-related financial risks, are still under consideration in the Assembly Appropriations Committee.
To address the risks posed by orphan wells, the California Geologic Energy Management Division (CalGEM) has released a plan for the first phase of its efforts. With Southern California having one of the highest concentrations of orphan wells in the country, the state has allocated $100 million over two years to tackle the problem. CalGEM’s plan involves spending $80 million to cap 378 wells next year, with contracts expected to be issued before the end of 2023. While most of these wells are in Santa Barbara, Kern, and Ventura counties, there are also wells near various sensitive sites, including schools and residential areas. Environmental groups have expressed satisfaction with the state’s action on orphan wells. However, they are raising concerns about the pace of the cleanup work and the fact that taxpayers, rather than the responsible companies, are bearing the financial burden.
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