Gov. Gavin Newsom wants to impose a mandate on Golden State gasoline refineries that will raise prices in other states.
The Editorial Board, WSJ, September 13, 2024
The Golden State’s burdensome climate regulations and permitting headaches have caused seven California refineries to cease production over the last decade, shrinking supply. This has also pushed up gas prices. Whenever a refinery has problems, prices spike.
Enter Gov. Newsom, who is pushing legislation that would require refiners to maintain larger fuel stockpiles to mitigate supply shortages and price increases. His plan would do the opposite.
Refiners already maintain at least two weeks of supply. But when a California refinery has an unplanned outage, prices still increase because markets understand that inventory that is drawn down will have to be replenished. Mr. Newsom’s legislation would force refiners to produce extra gasoline merely to store it, which would be expensive.
Gasoline has a shelf life of three to six months, so refiners would have to constantly produce more fuel for storage. This would reduce supply and increase prices. Building one new storage tank can take a decade and cost $35 million. Why make the investment when Sacramento is threatening to put you out of business?
The legislation would also allow bureaucrats to veto refinery maintenance plans if they determine that statewide inventory levels are too low. This would raise the risks of accidents that could result in longer shutdowns. No less than the California Energy Commission warns that Mr. Newsom’s plan “may artificially create shortages in downstream markets” and “increase average prices.”
Mr. Lombardo and Ms. Hobbs plead: “For the good of our neighboring constituencies, and for the greater good of consumers across the West, we ask that you reevaluate mandating refinery inventory.” Both face re-election in 2026. They don’t want to be held accountable by voters for rising gas prices, especially when they’re not to blame.
Their states’ gas prices are also likely to rise owing to a different California regulation that takes effect in January. This one requires tankers importing fuel to meet stricter emissions requirements or plug into the grid. Most vessels currently don’t meet California’s standards, and its grid can’t support their power demands. The result will be a bigger supply squeeze.
California’s climate regulations create a public nuisance for its neighbors, so perhaps they should consider suing Mr. Newsom for burdening interstate commerce. Why should Arizonans and Nevadans pay for policies advanced by politicians they don’t vote for and can’t vote out?