California takes on oil companies again with law that could cap profits in the state

“We’ve proven that we can actually beat the big tankers,” Newsom said during a signing ceremony on Capitol Hill.

The victory came despite the industry deploying “more than 30 lobbyists” to thwart the bill, he said.

The industry recognizes the setbacks.

“I think what we’ve seen is that the governor has had this industry in the crosshairs for several years now,” said Kevin Slage, spokesman for the Western States Petroleum Association, the lead lobbyist for the industry in Sacramento. “With a supermajority and the ability of governors to pull the levers with lawmakers, it’s a tough political environment for us for sure.”

Newsom has aggressively pursued an ambitious legislative climate agenda since last summer, winning praise from environmentalists who once lamented his hands-off approach and added to executive orders phasing out gas-powered car sales and fracking. And he regularly denounced the oil companies for getting in his way. Last summer, he excoriated companies for running ads that framed his push last summer as a matter of righteousness and “which side we’re on”.

“Big oil lost,” Newsom told an audience in New York after pushing the package through the Legislature, “and they’re not used to losing.”

He used the momentum of those victories to try to cut oil industry profits, announcing his plan before the end of the bill-signing period. The proposal evolved significantly from a windfall tax to a framework for the California Energy Commission to investigate profits. But Newsom’s rhetoric remained the same: the oil companies are ripping you off.

Newsom has been unusually engaged with lawmakers throughout the process, visiting caucuses and speaking with members individually and in small groups. After lawmakers balked at Newsom’s initial idea, fearing it would backfire and raise prices, the administration agreed to language requiring the Energy Commission to ensure that benefits for consumers would outweigh the disadvantages.

This both eased lawmakers’ fears of unintended consequences and helped lawmakers feel they were being led rather than dragged. A senior legislative staffer called Newsom’s tactic “a sea change” in his approach to the Legislative Assembly and a “very important factor in how it worked out.”

“It’s not something the governor is shoving down our throats,” Assemblywoman Jacqui Irwin (D-Thousand Oaks) said on the floor of the Assembly.

Developing this language took months. The revamped proposal then blasted through the Legislature in less than two weeks as Newsom and Democrats sought to anticipate a counteroffensive. Opponents of the oil industry protested Newsom’s rush to an unverified proposition that would harm consumers by distorting a complex industry. It didn’t matter.

“Fossil fuel obsolescence is on the horizon,” Assemblyman Alex Lee (D-Milpitas) told members.

It has not always been the case. California’s proud environmentalism belies the political and economic might of the state’s oil extractors and refiners. Industry groups spend millions of dollars electing allies to the Legislative Assembly — often moderate Democrats — where the halls are packed with lobbyists tasked with thwarting legislation that hurts corporate bottom lines. The Western States Petroleum Association spent nearly $20 million on lobbying and campaigning in 2021 and 2022.

They enlisted powerful political allies. That has meant hiring connected players like the former leader of the Moderate Democrats and former California oil and gas regulator. More importantly, the oil industry has forged an alliance with a labor umbrella group whose members work in refineries – a key source of influence in a Capitol where organized labor wields considerable influence.

Bills to reduce emissions or require new oil wells to be located away from homes and schools could not overcome this opposition. Newsom’s intervention was decisive. Lawmakers revived the measures at the governor’s request and pushed them onto his desk.

“It’s perhaps the most powerful political coalition on the state Capitol,” said Assemblyman Al Muratsuchi (D-Torrance), who has become a vocal critic of the government’s influence. oil industry. “We can only overcome this if the governor takes the lead and champions climate action.”

Changing voter opinions also stimulate political momentum. A decade ago, a plurality of California voters said tough environmental laws were too costly. In 2021, nearly two-thirds said they were worth the cost. Voters are more likely to rate climate change as a serious issue as annual wildfires have become more destructive. Newsom and the Legislative Assembly took advantage of this.

“The governor was more aggressive, and I think that inspired the legislature to be more aggressive. Although there are allies in both parts of the oil industry, I think a lot of people were hungry to get things done,” said former Assemblywoman Cristina Garcia, who helped negotiate last year’s climate package. “The Governor deserves some credit, but I think there are also other factors with the stars aligning themselves politically, so it doesn’t feel like you’re taking such a political hit.”

The money map also changes. The climate-focused Energy Foundation spent millions in Sacramento last year, putting it on par with oil companies. The California Democratic Party now refuses oil money. Industry can still flood candidates with money, but their resources are increasingly coming up against voter disgust at the influence of fossil fuels.

The shifting calculus for some lawmakers, Garcia said, has gone from “‘You’re gonna come and spend a lot of money on me, and I might lose my seat’ to, “You’re gonna come and spend a lot of money on me and I won’t lose. my seat, because the electorate rewards us for our audacity.

Several Democrats who have benefited from millions of dollars in campaign spending in the oil industry voted to sanction Newsom’s oil profits. At the same time, a bloc of House Democrats who were industry beneficiaries withheld their votes.

“Many of these members rely on campaign support from big oil companies,” Muratsuchi said.

This support will likely continue. The industry could also undermine Newsom by passing a referendum overturning the Oil Well Setbacks Act. But the governor has helped change the political dynamic around the oil industry, said former Sen. Fran Pavley, an architect of the state’s cap-and-trade system who is now the environmental policy director for the state. USC Schwarzenegger Institute.

“They’re very influential in many parts of the state,” Pavley said, but “I think Gavin Newsom has done a good job of changing the political winds.”

Lara Korte contributed to this report from Sacramento.