Oil, environmental groups clash over Gov. Gavin Newsom’s cap-and-invest plan
The Western States Petroleum Association — a Sacramento-based lobbying group for the oil and gas industry — sent a letter to Gov. Gavin Newsom on Wednesday and expressed its “deep concern and disappointment” over the proposed cap-and-invest program and the potential financial impacts on refiners, urging state leaders to take more time to review the proposal.
The letter came two days after an informational hearing on the program, where air quality regulators outlined the staff proposal and lawmakers urged them to move more quickly to shift allowances from natural gas utilities to electric utilities to address energy affordability for Californians.
In the letter, the major state lobbying group claimed the current version of the proposal would add about $5 billion to $9 billion in costs to refiners over the next 10 years. Citing an independent analysis, the group warned that refinery compliance costs could climb to about $1.5 billion a year by 2035, with total costs over the next decade projected to fall between $5 billion and $9 billion.
“With roughly 18 percent of the state’s refining capacity closing within a six-month period, it is alarming that the California Air Resources Board would propose a policy that further destabilizes a critical sector of California’s economy,” the president of the group, Jodie Muller, said in the letter.
“Reduced refining capacity and heightened supply vulnerability will likely drive higher and more volatile gasoline prices, exposing Californians to supply shocks and global market disruptions,”
There are six major gasoline-producing refineries left in California that can influence fuel prices. Of the six, Valero’s Benicia refinery is set to shut down in April.
Concerns about more refineries moving out of state were a key theme during the informational hearing, as lawmakers focused on ways to maintain energy affordability — a concern that industry leaders say is already becoming a reality.
PBF Energy, which operates two of the six major refineries remaining in the state, sent a letter to CARB’s chair, Lauren Sanchez, on the same day, arguing the proposal would put California refineries at a competitive disadvantage compared to out-of-state suppliers, and warning that, without changes, it could reconsider the viability of its in-state operations.
“Unless CARB puts in-state refineries on an equal footing with importers, which we think can be accomplished this year, we will be forced to address the viability of our in-state operations, along with every other refiner in the state,” Paul Davis, senior vice president of supply, trading and optimization at PBF Energy wrote in the letter.
Environmental advocates reject industry arguments
Meanwhile, environmental advocates who argue the cap-and-invest proposal could go further pushed back on the oil industry’s claims, rejecting the premise of the lobbying group’s argument.
Katelyn Roedner Sutter, California state director for the Environmental Defense Fund, said the cap-and-invest program is designed to prioritize household affordability over the financial interests of oil companies and to prevent leakage or emissions and industry shifting to other states.
Environmental Defense Fund has advocated for removing about 180 million emission allowances from the overall cap, instead of the 118 million proposed by CARB. One allowance is a permit to emit one metric ton of greenhouse gases, measured in carbon dioxide equivalent.
Sutter argued that this stricter approach would result in an estimated $860 million in net savings for lower and moderate income Californians through 2045, particularly as the costs of climate change continue to mount.
Allowances function as authorizations to emit a limited amount of greenhouse gases in the state. Allowances are created by the CARB and are allocated to the state’s regulated companies, including refineries, through a combination of free allocations, state-run auctions, and trades on the carbon market. Investor‑owned utilities such as PG&E receive allowances that they must sell at state auctions, and the raised money is returned to customers through their energy bills.
“The oil industry gets the most generous industrial allocation. The program is designed the way it is to prevent leakage, and thus far, we have not really seen any evidence of leakage under the cap-and-invest program,” Sutter said on Thursday.
“They have been getting free allowances for years. (With) cap-and-invest, they got an even more generous allocation of allowances, and we still see them threaten refinery closures…these are some of the biggest and most profitable companies in the world, and they want more free stuff from California.”
This story was originally published February 26, 2026 at 3:45 PM with the headline "Oil, environmental groups clash over Gov. Gavin Newsom’s cap-and-invest plan."
