California’s EV Mandate and Its Impact on the Oil Industry: Could State-Controlled Refineries Be the Answer?

California’s aggressive push toward electric vehicles (EVs) is causing unintended consequences for its oil industry. With a mandate to phase out gas-powered cars by 2035 and a regulatory environment that encourages EV adoption, the state has seen a significant reduction in gasoline consumption. This shift has led oil companies to scale back their operations in the state, with some even shutting down refineries. The California Energy Commission (CEC) is now considering drastic measures, including potentially taking control of oil refineries to ensure the state maintains a reliable gasoline supply.

The push for electric vehicles has made significant strides in California, with around 25% of new car sales being electric or hybrid vehicles. However, as demand for gasoline declines, refineries in California are finding it less profitable to operate. This has resulted in the closure of several refineries, with Phillips 66, a major player in California’s oil market, announcing the shutdown of its refinery outside of Los Angeles by the end of 2024. This closure has removed around 8% of the state’s refining capacity and led to fears of rising gasoline prices and fuel shortages.

As more refineries shut down, California risks facing serious gasoline supply issues, especially since most of the state's gasoline comes from local refineries. The state imports over 50% of its crude oil, but many of these external refineries are unable to produce the special fuel blends required to meet California’s stringent air quality standards. As a result, the CEC has been exploring options to maintain a stable and affordable gasoline supply. One of the most controversial proposals is for the state to take control of at least one refinery. This idea has raised concerns among industry experts, who argue that running an oil refinery is a complex operation that requires years of specialized knowledge and expertise.

Some California lawmakers and industry advocates have warned that the state’s plan to manage its own refineries could backfire. The Western States Petroleum Association has voiced concerns that state-run refineries could lead to inefficiencies, higher costs, and safety risks. They argue that the expertise needed to manage such operations is best left to private companies who have the experience and infrastructure to handle the complexities of refinery work.

In addition to concerns over refinery management, the CEC’s regulations have been putting additional pressure on oil companies in California. The state’s cap-and-trade program requires refineries to buy carbon credits to offset their emissions, further driving up the cost of doing business. These added costs, along with declining demand for gasoline, have made it less financially viable for companies to continue refining in the state.

Despite these challenges, the CEC is determined to find a solution to ensure the state’s energy needs are met. Governor Gavin Newsom’s office has stated that the state can still embrace clean energy goals while protecting consumers from rising gasoline prices. The CEC is working on proposals that could stabilize the fuel supply while California continues its transition away from fossil fuels. However, these efforts have not been without controversy, and the debate over whether state-run refineries are the right solution is far from settled.

California’s bold efforts to reduce its carbon footprint by mandating electric vehicles and promoting clean energy are admirable, but they come with significant challenges. The state’s heavy reliance on local refineries for its gasoline supply means that the closure of these refineries could lead to supply disruptions and price hikes. The CEC’s proposal to take control of refineries in response to these challenges could set a troubling precedent, especially when considering the difficulties of managing such complex operations.

The broader implications of this crisis go beyond California, as it could signal how other states and nations address the intersection of clean energy goals and traditional energy needs. If California’s plan to control refineries succeeds, it may spark debates in other regions about whether state intervention is necessary to ensure energy security during the global transition to cleaner technologies.

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