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The oil industry is having an I-told-you-so moment in California.
For decades, the state has raced to end its reliance on fossil fuels and prioritize clean energy. Its relationship with oil companies became particularly contentious in the past two years, as Gov. Gavin Newsom and Democratic legislators held two special sessions to crack down on alleged price gouging at the pump.
But now two of its last remaining fuel refineries are closing sooner than California expected, tossing a simmering emergency into officials’ laps. With a hotly debated forecast that $8-per-gallon gasoline might be on the horizon, there has been a remarkable shift at the state Capitol. Led by Newsom, who just last fall was lambasting oil companies for “screwing” consumers, California may soon let its black gold flow again.
“We are all the beneficiaries of oil and gas. No one’s naive about that,” Newsom said at a press conference last month. “So it’s always been about finding a just transition, a pragmatism in terms of that process.”
Newsom and Democratic legislative leaders are now negotiating a plan with the industry to boost stagnating production in California’s oil-drilling hub of Kern County — and avert a nightmare scenario for a governor with national ambitions and a party that has promised to focus on affordability. Lawmakers could pass a measure before the end of their annual session in mid-September, though the details remain unsettled and environmental groups are raising alarms.
The headspinning realignment potentially heralds a new era in California’s transition to a carbon-free future, as high costs, technological impediments and flagging political will force Democrats to recalibrate their ambitious climate goals. President Donald Trump and congressional Republicans are also taking aim at the state’s vast powers to regulate its greenhouse gas emissions and air pollution, including revoking California’s mandate to phase out gas-powered vehicles and slashing renewable energy tax credits.
“We all need to kind of evolve. Maybe that’s just the lesson on climate. There’s not really a purity test on this. It’s not like civil rights,” said state Sen. Henry Stern, a Calabasas Democrat who five years ago was publicly advocating for keeping more California oil in the ground.
As both a staffer and a legislator, Stern worked on major laws to require buffer zones around oil wells in sensitive areas and restrict the well stimulation technique known as fracking. But he said he does not want California to see the same backlash to climate action as western Europe, where environmentally focused Green parties have recently been crushed electorally by far-right populists.
“We can perform a muscular version of climate policy that doesn’t have to be so all-or-nothing,” Stern said.
Oil industry forces Newsom’s hand
Refinery closures are accelerating the pressure in Sacramento. Two days after Newsom signed a law increasing state oversight of maintenance, Phillips 66 announced in October that it would shut its Los Angeles facility by the end of 2025 because of concerns over the sustainability of the California market. Then in April, Valero declared it would close its Benicia refinery next year, citing a challenging regulatory environment.
That would leave only six major facilities to refine crude oil into transportation fuels in a state that remains the country’s second-largest gasoline consumer after Texas, as well as a major user of jet fuel, according to the U.S. Energy Information Administration. A business professor at the University of Southern California projected the loss of refining capacity, which will be offset with more expensive imports of finished fuel, combined with additional state actions, could send gasoline prices spiraling past $8 per gallon by the end of 2026.
Republicans pounced on that figure to criticize Newsom for fomenting an energy crisis in California, sparking fierce pushback from the governor’s office, which has dismissed the report as an “unscientific analysis” by a professor with close ties to the oil industry. Other experts have estimated a smaller effect on prices, which currently average about $4.49 per gallon in California, according to AAA, $1.33 higher than the national average but lower than they’ve been since January.
The Western States Petroleum Association — the powerful Sacramento-based lobby for the oil and gas industry that has donated more than $330,000 to lawmakers in the past decade — blames taxes, fees and regulations for California’s high prices. Decades of state rules, including strict emissions targets, a ban on the additive MTBE, and requirements for a special gasoline blend, traditionally make refining more expensive. Drilling in California is also in what the industry calls “terminal decline” as the Newsom administration has largely stopped issuing new permits, forcing a greater reliance on foreign countries such as Brazil, Iraq, Guyana and Ecuador with looser labor and environmental standards.
“At some point, are you going to have enough supply to meet California’s demands?” said Catherine Reheis-Boyd, CEO of the petroleum association, who evoked the fuel shortages and long lines at gas stations that followed a 1973 embargo against the United States by other oil-producing nations. “People’s lives were completely disrupted.”
Industry leaders argue pumping more crude oil in California, particularly in Kern County, could help meet demand at a lower cost. But if the state doesn’t act quickly, they warn that production could drop so low it would shut down pipelines between local oil fields and refineries, further exacerbating a crisis of California’s own creation.
“For me, I don’t care if the motivation is political or policy. I’m very happy that we’re having a conversation about something that’s really impactful to the consumers of California,” Reheis-Boyd said.
Climate commitment meets reality
After years of making the oil industry into a political boogeyman, Newsom has become surprisingly receptive to its message.
Gone is the bombastic governor who declared to a United Nations summit in 2023 that “this climate crisis is a fossil fuel crisis,” or strong-armed the Legislature that same year into adopting a law that could penalize oil companies for excessive profits.
In April, after Valero said it would close its Benicia refinery, Newsom directed Siva Gunda, vice chair of the California Energy Commission, to “redouble the state’s efforts to work closely with refiners on short- and long-term planning” and ensure a “reliable supply of transportation fuels.”
Gunda returned a series of recommendations in June that closely aligned with the industry’s wishlist, including stabilizing in-state crude production, rolling back regulations that limit imports and improving investor confidence.
While the commission is exploring delaying implementation of the profit penalty and refinery maintenance oversight laws, Newsom began circulating a draft bill that would provide blanket approval for environmental reviews of Kern County wells to sidestep litigation that has stalled drilling. That proposal is now at the center of negotiations over a legislative package that could simultaneously create new standards for restarting offshore drilling, require the industry to plug more idle wells and end the use of fracking.
“We’re in the ‘how’ business. We move to a low-carbon, green-growth future, change the way we produce and consume energy,” Newsom said at the press conference last month. “At the same time, we have enough available fuel supplies, a stable fuel supply and address the anxieties around cost. Both and.”
Matt Rodriguez, a longtime Democratic consultant who has worked in California and on several presidential campaigns, said Newsom is caught between a commitment to climate action that is important to the left and a substantive problem that could hurt both the economy and individual voters.
“The reality is that gas prices are higher here than the rest of the nation. That’s just undeniable,” he said. “If there are storm clouds on the horizon, you can’t just sit there and ignore it.”
The larger the gap between the price at the pump in California and in other states, Rodriguez said, the greater the liability it poses in a future presidential campaign for Newsom, who will likely also face criticism for how his own policies contributed to the problem. But Rodriguez said there is a potential upside if the governor can negotiate a solution with the oil industry, allowing him to tout himself as a pragmatist rather than an ideologue.
“Any way that he can keep gas prices from ballooning, that’s his imperative,” Rodriguez said.
‘We didn’t have a champion’
Environmental groups, meanwhile, are up in arms. More than 120 signed a letter earlier this month opposing Newsom’s push, which they characterized as an industry giveaway that would “gravely harm the air we breathe and water we drink around the state, but have no impact on refinery closures or gas prices.”
Hollin Kretzmann, an attorney with the Center for Biological Diversity, called the governor’s proposal to streamline approval of new Kern County wells a “drill, baby, drill” plan that would “eviscerate” California’s bedrock environmental review law for one of its core purposes: reining in a polluting industry.
He noted that courts already struck down earlier versions of the idea when Kern County tried it, because the environmental review was deemed insufficient. Last month, the county passed a third version of the plan, which Newsom’s bill would enshrine into state law.
“It’s a very misguided and ill-conceived proposal,” Kretzmann said.
Martha Dina Argüello, executive director of the Physicians for Social Responsibility Los Angeles, remembers attending a press conference last September, outside the Inglewood Oil Field, where Newsom signed a trio of new laws aimed at cleaning up idle wells and restricting oil and gas operations. She said she was “stunned” by the governor’s rapid reversal and warned that it would allow the oil industry to gut public health protections under the guise of affordability, passing the costs on to low-income communities near oil fields and refineries that have higher asthma and cancer risks from exposure to toxic chemicals.
“You don’t often get champions who are consistent — and it’s very sad that we didn’t have a champion that was really going to do the difficult thing and tell us the changes that we need to make to actually address climate change and air pollution,” she said. “That’s what our communities still need.”
Landing a deal will be tricky
The governor’s office is working to find an approach that can get through the Legislature in a short time frame. Lawmakers return from their summer recess on Monday for the final month of session.
That could necessitate making tradeoffs between priorities for environmentally minded lawmakers on the left, such as protecting the buffer zones around oil wells, and moderates more sympathetic to the industry’s arguments. It’s possible the proposal will be merged with a separate effort to extend California’s cap-and-trade system for greenhouse gas emissions, because oil refiners are seeking a more gradual decline in the credits that allow them to emit carbon pollution without paying.
Stern described the mood among lawmakers as “begrudgingly practical,” but also grumpy about having to take on yet another fight over oil, “so nothing feels like a win.” Given the political sensitivities, he said it was possible the Legislature would pass only the provision to boost drilling in Kern County and carry over the rest of the discussion into next year.
Nevertheless, the boundaries of the debate around domestic oil production have completely shifted in Sacramento, with affordability taking on a more prominent role.
Learn more about legislators mentioned in this story.
- Shannon GroveRepublican, State Senate, District 12 (Bakersfield)
- Henry SternDemocrat, State Senate, District 27 (Calabasas)
- Cottie Petrie-NorrisDemocrat, State Assembly, District 73 (Irvine)
Assemblymember Cottie Petrie-Norris, an Irvine Democrat who chairs the Assembly’s utilities and energy committee, said the Legislature could no longer afford to treat California’s energy transition like a future aspiration, as previous generations of officials have. Instead, lawmakers must be pragmatic and retain the support of everyday Californians, she said, because without their buy-in, the state will cease to be a climate leader.
“There are some advocates who continue to think that you can somehow just wave a magic wand and end oil production in California without terrible consequences,” she said. “We need California to be an inspiration, and not a cautionary tale.”
An agreement to expand drilling would be a hard-fought victory for Sen. Shannon Grove, a Bakersfield Republican who has spent the majority of her 10-year legislative career repeatedly warning that cutting oil production in California would only increase reliance on imports from countries with lower environmental and labor standards.
“Do I wish that companies and businesses would not have left my district and taken their jobs with them and created a vast unemployment rate? Do I wish that the people who lost their jobs still had their jobs? Do I wish it would have happened sooner?” Grove said. “Yes. But I’m grateful that it’s happening.”
Grove said Kern County, which also is home to some of the state’s largest solar and wind projects, has the potential to be the “energy capital of the United States.” She argues the county has done its due diligence with environmental reviews to ensure that future drilling projects are more climate conscious than importing oil from other countries.
“If you’re going to do it, you have to do it right,” she said, “and Kern County does it right.”
This article was originally published by CalMatters.
