Guest Commentary written by

Ranjit Deshmukh

Ranjit Deshmukh is an environmental studies associate professor at UC Santa Barbara and a Public Voices fellow of The OpEd Project.

The U.S.-Iran war has seen gasoline prices double at times and cost Californians an additional $3.6 billion at the pump.

That’s not the only thing affecting California’s gasoline prices. Two refineries, Phillips 66 and Valero Benicia, recently shut down, leaving only six major refineries responsible for California’s petroleum fuels, reducing the state’s refining capacity by 17%. 

California is an island when it comes to gasoline. The state requires a special blend that results in lower air pollution and avoids the smog that used to blanket Los Angeles.

While California’s refineries are tuned to make this special blend, imports to meet shortfalls come through marine ports. No pipelines bring out-of-state gasoline into California. 

The recent refinery retirements have left the rest with less competition and more opportunities to raise their profit margins when inventories are tight. The average gross margin of California’s refineries was about 50% higher in the two months following the start of the war compared to the average margin in the previous 12. 

Refinery companies in California are also making more money from retail business. This year branded gasoline, which is sold by gas stations with direct ties to refinery companies, is 30 cents per gallon more than unbranded gasoline in California.

California’s refineries are asking for more financial support from the state (read taxpayers) and threatening to shut down, citing the state’s higher taxes, stricter environmental laws and the additional costs imposed by the “cap-and-invest” market on carbon polluters. But these taxes and regulations are necessary to ensure clean air and water for our communities.

In May, the California Air Resources Board approved a provision of free allowances worth about $2 billion for refineries, to incentivize them to decarbonize and not retire.

Yet there is no guarantee that the remaining refineries won’t retire in coming years. Most are more than 100 years old. Refineries are already facing declining demand for gasoline, which accounts for more than half their output.

This decline is likely to accelerate as more Californians adopt electric vehicles. One in 4 vehicles sold now is electric. 

One option is to just let California’s refineries retire, based on their internal financial decisions, without any state interventions or relaxing any environmental laws. We’d have to make sure that the cost of gasoline for those who are still driving gas cars, especially low-income households, remains reasonable. For that, we must ensure an adequate supply of gasoline by facilitating more imports via marine shipments and developing more storage to avoid price spikes. 

California could also allow the development of a pipeline to import petroleum products. One is already proposed which would connect Texas to Arizona and then reverse the flow on an existing pipeline that currently exports fuels from California to Arizona.

The increased competition would help keep refinery profit margins in check, buffer the state from additional refinery retirements and limit costs to California drivers.

California should make sure that refinery workers who lose jobs and communities that lose taxes from refineries are well supported through this transition. The state also should ensure that refineries are transparent about — and pay for — the costs of cleaning up their sites after retirement to ensure host communities, already exposed to high levels of refinery pollution, are not left with a toxic site in their backyard. 

To be clear, we want to see California refineries provide the state’s demand for petroleum fuels.

However, many retirements will be inevitable on the road to a clean energy transition. How we manage this transition is critical for ensuring affordable fuel, better health and economic wellbeing for all Californians.