Regular Programming
How California’s derision of oil refiners could spill into the presidential election.
“The economy is not immutable; it's not about natural laws. It's about rules, and we make the rules.” – Gavin Newsom
On February 18, 2015, hydrocarbon fumes leaked into the electrostatic precipitator (ESP) inside ExxonMobil’s refinery in Torrance, California, a facility just outside of Los Angeles. Designed to remove fine particulate matter from exhaust gases, ESPs are widely used in refineries and other industrial sites to satisfy various federal mandates like the Clean Air Act. In this instance, the unintentional mixing of fuel, air, and sparks led to a massive explosion, spewing a large plume of ash and debris into the surrounding area. The blast knocked the refinery offline and substantially reduced its output for more than a year.
Given the exiguity of refining capacity in California and its relative isolation from the rest of the country’s hydrocarbon infrastructure, the event quickly became highly politicized, and recriminations swiftly followed. Investigations, fines, and calls for the refinery to be permanently shuttered ultimately led Exxon to sell the facility to PBF Energy the following year, marking the company’s exit from California’s refining sector altogether.
Refinery accidents are quite common—handling hazardous materials at a massive scale is never without risk. The Torrance event became a disproportionately historical one for reasons few can explain even to this day. Gasoline had always been more expensive in California due to higher taxes, increased regulatory burden, and stricter pollution controls, but such extra costs had been range-bound between $0.40-0.60 per gallon above the US national average for many years. In the aftermath of this particular industrial accident, that premium blew out and continues to grind higher. Some of the delta is certainly due to ever-increasing levies imposed by the state government, but the majority of the gap is a true mystery.
No one has more earnestly and apolitically tried to ascertain the basis for this “mystery premium” than Severin Borenstein, Professor of Business Administration and Public Policy at the UC Berkeley Haas School of Business and faculty director of the Energy Institute at Haas. This framing of the issue from a blog post he published in early 2023 captures the essence of the conundrum:
“The rest of the US may have moved on from fretting about gas prices, but California is starting 2023 with a special legislative session on the subject. In December, California prices averaged $4.32, while the average was $3.09 elsewhere in the US. In California politics, that $1.23 difference is like a Rorschach inkblot test.
Those on the right look at the gap and see wasteful government regulation and excessive taxation in California. Those on the left see price gouging by refiners and oil companies. And because each side is confident they know what the problem is, they are already prepared with their favorite solutions.”
This pernicious gap is set to continue expanding under each new round of state-imposed regulations, and the timing of the most recent bout presents unexpected ramifications for the upcoming US presidential elections. With two swing states subject to the knock-on effects of Governor Gavin Newsom’s war on oil, the stage is set for quite the spectacle. Let’s explore why.