Ukraine-Russia war could undermine California’s climate change law
The shock to the global financial system from the Russian-Ukrainian war is not only driving up the cost of gasoline in the United States, but also the price of gas to heat homes, boost inflation and potentially undermine legislation on climate change in California, as well as the state’s efforts to reduce oil and gas production.
Although the United States bans Russian energy imports, California does not depend on Russia for oil or gas. Yet the industry is already aggressively pushing the Newsom administration to approve more than 1,000 permits for new production to “reduce the need for increased imports from foreign sources, such as Russia,” the Western States said. Petroleum Association in a statement. Experts tell Capital & Main that this will do nothing to stop rising gas prices in the near term.
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As legislation begins to make its way through California’s Assembly and Senate committees, three bills aimed at limiting the power of the oil and gas industry in the state could feel the impact of this political environment. rapidly evolving. One would divest billions in state pension funds from fossil fuel-related assets, while another would shut down three offshore oil rigs. A third would promote greater transparency in how companies that sell gasoline in California determine prices at the pump.
Senate Bill 1173
California oversees the largest public pension fund and the largest teachers’ retirement fund in the country. Fossil fuel investments for CalPERS and CalSTRS total more than $9 billion, including direct stakes and as part of larger funds, according to Fossil Free California, which is sponsoring a divestment bill introduced by Sen. Lena Gonzalez (D-Long Beach) .
As of last year, the two funds held millions of shares in companies like Chevron, ConocoPhillips, Marathon and Exxon. The bill would ban managers of the funds from new fossil fuel investments and require full divestment by 2027.
“The two largest state employee pension funds are using enormous investment power to fund companies that are driving climate change,” Gonzalez said at a news conference in February. The State Building and Construction Trades Council of California, which generally votes in line with the oil industry, then sent a letter to the Legislature opposing the bill.
CalPERS and CalSTRS own millions of shares of Gazprom, Russia’s state-owned oil company, whose revenue accounted for more than a third of the government’s total budget in 2021. Last October, those shares peaked at nearly $11, but they have now fallen to $1.10. In addition to Gazprom, CalPERS and CalSTRS are also invested in state oil companies in Saudi Arabia, Canada, Hungary, China and across Europe.
In an emailed statement, CalSTRS did not say whether it would release its Gazprom stakes, but said it opposed the divestiture bill. CalPERS had investments in Gazprom through stock indices that have already fallen Russian stocks, a representative said, and was in contact with Gonzalez’s office about the divestment bill.
Fossil Free California released a report in the early months of the pandemic that found CalSTRS lost over $1 billion when oil prices fell in the first half of 2020. Today the story is different: With stock prices soaring, including record highs for Chevron, non-Russian oil companies could be attractive for short-term gains.
Proponents of the legislation don’t see it that way.
“To fight climate change, we need to phase out the use of fossil fuels, which means that over the long term, stocks of fossil fuel companies are expected to underperform and pose a financial risk,” Emily said. Kaufman, who works on divestment. campaign with Fossil Free California.
Senate Bill 1322
Russian oil made up only a small portion of California’s oil consumption, but the state’s refineries were among the biggest recipients of Russian crude imported into the United States last year. The average cost of a gallon of gasoline in the state is now over $5.50.
A bill drafted by Sen. Ben Allen (D-West Los Angeles) would require companies to publicly disclose each month the difference between what it costs them to buy a barrel of oil and refine it into gasoline and the price that they sell it at the pump.
The industry is using high gasoline prices to double down on calls for more oil production in the state, but that won’t make much of a difference anytime soon, says Mark Brownstein, senior vice president of the Environmental Defense Fund who studies the energy transition from fossil fuels.
“Increasing domestic oil production, even if you thought it was the right thing to do, takes months, if not years, on a large scale. It would take years to impact domestic supply or on world prices,” Brownstein said.
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Companies that sell gasoline in California have a history of charging excessive prices compared to the rest of the country, just because they could.
A 2019 California Energy Commission report found that Californians paid about 30 cents more per gallon for gasoline sold by Chevron, Shell, and 76 (owned by Phillips 66) than the national average. The companies generated $11.6 billion in incremental revenue from California customers between 2013 and 2018 relative to their national retail margins.
After the report was released, the California Department of Justice filed suit against a handful of companies importing gasoline into California, including Vitol Inc., SK Energy Americas and SK Trading, for allegedly manipulating retail prices. pump after a 2015 refinery explosion in Torrance. state supplies. The California Department of Justice told Capital & Main it was unable to say whether it was also considering charges against Shell, Chevron or Phillips 66. Those companies have denied the allegations.
According to a press release from Allen’s office, five petroleum refiners control 96% of the gasoline made in the state and still receive about 30 to 40 cents more per gallon than smaller brands selling gasoline in the state. places like Costco and United Oil. The mark-up also started after the refinery explosion.
At a press conference on the bill, Consumer Watchdog President Jamie Court, whose organization supports the bill, said the extra costs per gallon in California could not be explained by surcharges. associated with environmental policies such as cap and trade or the Low Carbon Fuel Standard, which only add an additional 55 cents to the national retail margin. Currently, it’s $1.09 more in California.
The court said the oil and gas industry had not formally declared its opposition to the bill, but blamed environmental regulations for the price difference.
A WSPSA spokesman, Kevin Slagle, said its members are still reviewing the bill and may have more specific objections next week. “But what I can tell you now is that any examination of costs at the pump should begin by looking at California’s regulatory and tax environment. The first $1.27 a gallon we pay at the pump is now for taxes and regulatory programs. »
Senate Bill 953
The only bill introduced this session that proposes to limit oil and gas production in California would put three oil and gas rigs under the jurisdiction of the offline state.
Offshore drilling in nonfederal waters accounted for only about 5% and 2% of state oil and gas production in 2019, respectively. The amount coming specifically from the three platforms, excluding other offshore productions such as at the THUMS Islands supervised by the city of Long Beach, is even lower.
But the rigs still have the potential to cause catastrophic harm to marine life, according to the text of the bill drafted by Sen. Dave Min (D-Orange County). In fact, one of the platforms is currently offline after an oil pipeline was connected to an oil spill in the sea.
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“The real thing this punctuates for both Europe and the United States is that we need to quickly move away from fossil fuels and gas prices – I think our state needs to keep its climate promises and continue to end existing boreholes,” said Miyoko Sakashita. , director of oceans at the Center for Biological Diversity.
It will likely see the pushback from a coalition of 21 lawmakers, including Republicans and some Democrats, who sent a letter to Governor Newsom urging his administration to expand oil and gas production.
In a statement posted online, WSPA President Catherine Reheis-Boyd acknowledged the plight of Ukrainians before saying “energy leadership and independence” in California would strengthen national and global security.
But rather than serve as a reason to increase oil production, Brownstein says the crisis should accelerate the transition to clean energy sources.
“This is the fifth global oil price shock I’ve seen in my life related to world events, so how many times do you have to experience this before you decide to do something different?”