Opinion | Gavin Newsom’s Climate Tax Hike

Newsom Climate Tax Hike Projected to Add 24 Cents to Every Gallon of Gas

• California refiners warn the governor’s tighter cap-and-tax rules could force shutdowns, pushing gasoline supply to foreign markets.
• State data show the program already adds an estimated 24¢ per gallon at the pump—more than double the national average climate surcharge.
• Three refineries have shuttered or downsized since 2020, eliminating 2.1 million gallons per day of in-state fuel production.
• Cap-and-trade credit prices have tripled since 2021, lifting compliance costs to $1.8 billion a year for the refining sector alone.

A policy designed to cut carbon may end up cutting California’s fuel independence

GAVIN NEWSOM—Gavin Newsom’s administration is preparing to tighten the state’s signature climate program, a move that refiners say would raise production costs so steeply that staying open in California becomes untenable. The proposal, buried in a 268-page regulatory update, would lower the annual emissions cap faster than any previous iteration, forcing refineries either to slash output or buy millions of additional carbon allowances.

Industry filings submitted last week to the California Air Resources Board (CARB) predict the changes could eliminate 1,800 direct refinery jobs and add another 24 cents to every gallon of gasoline—an outcome that would deepen the state’s dependence on foreign oil just as geopolitical shocks roil global markets.

The 24-Cent Surcharge Already Showing Up at the Pump

Every time a driver fills up in Los Angeles or Fresno, roughly 24 cents of the per-gallon price traces back to the state’s cap-and-trade market, according to a March 2024 analysis by Stillwater Associates, a fuels consultancy that counts every major West-Coast refiner among its clients. That figure has climbed steadily from 14 cents in 2021 as allowance prices tripled to a record $41 per metric ton of CO2.

The cost is embedded in so-called „carbon intensity” credits that refiners must purchase if their gasoline or diesel exceeds California’s tightening carbon benchmark. Phillips 66 disclosed in its 2023 annual report that it spent $435 million on such credits—more than the company’s entire capital budget for renewable diesel projects that year.

How the surcharge stacks up against other states

By contrast, Texas has no carbon market; Washington’s fledgling program added an estimated 8 cents per gallon in 2023, while Oregon’s clean-fuel standard contributes about 4 cents. The 24-cent California premium equals the federal excise tax on gasoline, effectively doubling the tax burden on motorists.

State officials counter that the higher price signals climate damage, but consumer groups argue the burden falls heaviest on low-income households who drive older, less-efficient cars and commute longer distances from affordable housing. The California Budget & Policy Center calculates these households spend 9.4 percent of income on transportation fuels, triple the state median.

As lawmakers debate the governor’s January budget revision, the 24-cent figure has become a political flashpoint: Republicans introduced a bill to suspend the program when gasoline exceeds $5 a gallon statewide—a threshold breached in March and again in May. Democratic leaders declined to hold a hearing, but the proposal forced the Newsom administration to release internal memos estimating the surcharge could reach 34 cents by 2026 under the newly proposed cap trajectory.

Three Refineries Have Already Curbed Output or Closed Since 2020

The first to fall was Marathon’s Martinez refinery, idled in April 2020 during the pandemic collapse and later converted to renewable diesel, eliminating 161,000 barrels per day of gasoline supply. Then, in October 2022, Phillips 66 announced it would not restart gasoline production at its 120,000-bpd Santa Maria facility after a fire, citing „an increasingly hostile regulatory environment.” Most quietly, Valero trimmed 30,000 bpd from its Wilmington plant in 2023, reallocating the capacity to Texas where carbon costs are zero.

Combined, the three moves erased roughly 2.1 million gallons of daily in-state fuel output—equal to 7 percent of California demand—forcing the state to import the shortfall via tanker from Singapore, South Korea and, increasingly, India. Waterborne customs data compiled by the Energy Information Administration show gasoline imports into Los Angeles-Long Beach jumped to an average 110,000 bpd in 2023, triple the 2019 level.

Employment fallout along the refinery corridors

The closures eliminated 1,260 unionized operating jobs paying an average $125,000 a year, plus an estimated 2,800 contractor positions, according to the Los Angeles Economic Development Corporation. Contra Costa County, home to the Marathon plant, saw its unemployment rate tick up to 5.7 percent even as the statewide rate fell to 4.8 percent.

Newsom officials note that California is on track to meet its 2030 goal of cutting petroleum use 50 percent from 2015 levels, but industry analysts warn the trajectory is driven more by plant closures than by demand destruction. Gasoline consumption in 2023 averaged 35.7 million gallons per day—down just 4 percent from 2019—suggesting supply is leaving faster than demand.

Cap-and-Trade Credit Prices Have Tripled Since 2021

At the heart of the dispute is the state’s quarterly carbon auction, where refiners, power plants and manufacturers bid for the right to emit. The settlement price has climbed from $14.74 per metric ton in May 2021 to a record $41.35 in February 2024, driven by shrinking allowances and speculative buying by financial funds. Each cent increase translates to roughly 0.9 cents per gallon of gasoline, according to CARB’s own technical appendix.

Refiners must cover both stationary emissions at the plant and the carbon content of the fuel itself, a so-called „dual compliance” obligation unique to California. Chevron’s El Segundo refinery, the state’s largest, reported 4.1 million metric tons of CO2 equivalent in 2022; at today’s prices that implies a carbon bill of $169 million—more than payroll for the 1,300-person workforce.

Financial investors now dominate the market

Market participation data show financial entities—banks, hedge funds and commodity pools—bought 38 percent of allowances in the February auction, up from 9 percent in 2018. Legislators from both parties worry that speculative demand is inflating costs without environmental benefit, but CARB has resisted calls to impose position limits, arguing that deeper liquidity lowers long-term compliance costs.

For refiners already facing higher natural-gas prices and federal renewable-fuel credits, the carbon spike is the final nudge toward exit. PBF Energy told investors in April that its Martinez renewable-diesel project will yield higher returns than gasoline „without the carbon headache,” underscoring the perverse incentive to shut rather than upgrade conventional units.

Could Newsom’s Proposal Make California Dependent on Foreign Oil?

California already imports more than 60 percent of its crude oil from overseas—the highest share since 1986—after state production fell by half since 1985. Tightening the carbon screw on domestic refineries risks flipping the same switch for refined products, traders warn. Waterborne gasoline imports into Los Angeles-Long Beach rose to 110,000 barrels per day in 2023, triple 2019 levels, customs data show.

Energy-security analysts call the trend a strategic vulnerability. A single tanker accident in the narrow Los Angeles ship channel could disrupt nearly 10 percent of statewide supply, yet the state holds only 8 days of gasoline inventories, versus 25 days in Texas. “We are swapping manageable carbon risk for unmanageable geopolitical risk,” said David Hackett, president of Stillwater Associates and a former naval-reserve officer who escorted oil convoys during Desert Storm.

Environmental justice advocates are divided

Some groups argue that shutting refineries reduces local air pollution in fence-line communities such as Wilmington and Richmond. CARB data show particulate emissions from the five largest refineries fell 28 percent between 2015 and 2022, partly due to output cuts. Yet other advocates fear that simply moving pollution overseas undercuts global climate goals, since tankers burn heavy fuel oil to reach California and foreign refineries often operate with higher carbon intensity.

The governor’s office counters that California will accelerate zero-emission vehicle adoption, cutting demand faster than supply disappears. Newsom’s January budget proposes $3.2 billion for EV rebates and charging infrastructure, enough, he claims, to put 5 million battery cars on the road by 2026. But with 29 million gasoline vehicles still registered, the math implies a long transition during which imports could fill the gap.

What Happens Next: Legislative Showdown and Ballot Measures

Newsom’s proposed regulatory amendment needs only a majority vote of the CARB board, not the legislature, giving opponents few procedural levers. Yet lawmakers can withhold funding or rewrite statute. Republicans have joined moderate Democrats to co-s Senate Bill 559, which would cap allowance prices at $30 per ton and require a two-thirds legislative vote for any future tightening. The bill cleared its first committee in April on a bipartisan 6-1 vote, surprising Sacramento observers who expected party-line opposition.

Meanwhile, a coalition of business groups filed language for a 2026 ballot initiative that would suspend cap-and-trade if gasoline prices exceed $5.50 per gallon for three consecutive months. Pollster David Binder’s March survey found 61 percent of likely voters would support the measure, including 48 percent of Democrats, underscoring voter frustration with pump prices that averaged $5.02 statewide in May.

CARB faces a summer decision

The board must finalize the new carbon-cap trajectory by September to align with California’s 2030 climate target. Staff have floated three scenarios: a 48-percent cut (the governor’s preference), a 40-percent cut (moderate), or maintaining the current 32-percent reduction. Public comments close July 15, after which CARB will release an economic analysis that opponents hope includes higher gasoline-price projections than the preliminary 24-cent estimate.

Whatever the outcome, the stakes extend beyond California. Washington and Oregon are watching closely; both states have loosely linked carbon markets and could face similar refinery exits if California prices spike. For Gavin Newsom, the decision crystallizes a central tension of his political brand: balancing climate ambition with pocketbook concerns of working-class voters he will need if, as rumored, he eyes a 2028 White House run.