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News / Northwest

WA gas prices top nation as lawmakers take aim at oil industry profits

By Isabella Breda, The Seattle Times
Published: July 14, 2023, 7:21am

Washington drivers for weeks have paid the highest gas prices in the nation. And now some state legislators and Gov. Jay Inslee are forming plans to force oil companies to disclose how much money they’re making.

The moves are playing out on a growing political battleground over Washington’s ambitious policies to curb greenhouse gas emissions, which includes a program launched this year that puts a price on each metric ton of emitted gases that cause climate change.

Since the legislation creating the program passed in 2021, Inslee and some lawmakers have said gas prices would be largely unaffected, while industry officials and conservatives said consumer costs would rise.

A spokesperson for oil company Chevron says it’s unfair to assume the corporation would eat a compliance cost and not pass it along at the pump. That cost has been estimated by the Oil Price Information Service, industry officials and one economist to be about 50 cents per gallon of regular gas.

But questions of who is bearing the costs and who is making profits under the policy are hard to answer because of the opacity of both the oil company earnings and the state policy.

Taking a lesson from California, lawmakers are readying legislation to increase transparency around oil company profits.

“Right now, we have no visibility — Washington state is held hostage to oil companies, whether the climate bills are in place or not,” said Sen. Joe Nguyen, D-White Center, chair of the Environment, Energy & Technology Committee.

Jaime Smith, a spokesperson for the governor’s office, said in an email the governor, too, “intends to be aggressive on this front” during next year’s legislative session.

Months before the state’s program launched, gas prices began climbing until Washington surpassed California for the nation’s most expensive fuel in June.

Since the state held its first two auctions of greenhouse gas pollution allowances this year, raising over $800 million, it became easier for oil companies to point to the climate policy as the cause for rising fuel prices.

“The amount that we brought in the first two auctions is more than we thought we were going to get in the first two years,” Nguyen said.

A March invoice reviewed by The Times showed that an oil company had added a line item listed as “cap at the rack,” a reference to the state’s new program, of 52 cents per gallon of diesel purchased by a fuel distributor, which trucks wholesale fuels to gas stations, construction companies and homes around the state. That amount is similar to estimates from industry and academic sources.

Other expenses listed on the total fuel purchase included the federal LUST tax, superfund recovery, oil spill recovery, excise tax and the state low carbon fuel standard, as well as taxes for state special fuels, petroleum products and hazardous substance.

State and federal taxes made up about 20% of the cost of the total purchase, the “cap at the rack” fee alone made up another 13% of the total cost — the highest-cost item on top of the fuel itself — and the low carbon fuel standard made up less than 1%.

The state’s carbon pricing program is the centerpiece of the Climate Commitment Act. It caps overall emissions and puts a price on pollution for some of the state’s biggest emitters. It is intended to infuse some of the revenue back into consumers’ wallets for initiatives like swapping out fossil-fueled furnaces for electric heat pumps, ditching combustion engines for electric vehicles or buying electric bikes. The rest is intended to fund local governments, companies and tribes in their clean energy transitions.

Last week marked the hottest week ever recorded on the planet.

Experts say there’s still time to mitigate the worst effects of climate change, as every degree of additional warming has exponentially disastrous impacts: intensifying heat waves, floods, longer warm seasons and shorter cold seasons. Washington state has already begun experiencing the impacts of climate change, as warmer, drier summers drive worsening fire seasons; intensifying marine heat waves cause massive bird die-offs; streams become increasingly hot and uninhabitable for salmon; and glaciers retreat.

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The state’s legislation was an attempt to use a market-based system to meet the goals of the Paris Agreement, which sets out an international framework to limit global warming to 1.5 degrees Celsius (or 2.7 degrees Fahrenheit).

At 2 degrees Celsius of warming, critical tolerance levels for agriculture and health will be reached.

Oil companies claim that just like any other expense, they must pass on the compliance costs to the consumer. Some have expressed support for the program, but say they are only doing what it forces them to do.

“Chevron believes that a price for carbon makes sense,” said Ross Allen, a Chevron spokesperson, in an interview, “because it unlocks the power of the market to find innovative solutions to improve environmental performance.

“We’re not complaining about this. We’re complaining that it’s not our job to go bankrupt to help the state avoid the consequences of its programs. There’s no way for a refiner to absorb those costs; they could literally bankrupt the industry.”

Unlike the carbon tax and carbon fee that were earlier proposed by Democratic lawmakers, the program is intended to make polluting businesses, not consumers, pay. And it incentivizes faster paths to decarbonization: Polluting businesses can save on compliance costs if they reduce their emissions ahead of the state’s targets.

But the law that authorized the state Ecology Department to roll out the program does not say anything about regulating those polluting businesses’ profits. The department has no authority to crack down on the costs passed on to consumers.

“I’m not naive. I knew they were going to do this. I didn’t realize how aggressive they’re going to be, but that’s my fault,” Nguyen said. “I’m not ducking the fact that there was going to be a cost [to the consumer] associated with this.”

Some current and former lawmakers say oil companies’ arguments are disingenuous.

Reuven Carlyle, former Washington lawmaker and one of the architects of the cap-and-invest program, says oil companies ought to back up their claims. “If [oil companies] claim that the state policy is eating into their profits to the point that they have no choice but to pass it to consumers, they should bear the burden to prove that argument by being more transparent with their margins,” Carlyle said.

Oil companies are also funding campaigns by conservative think tanks and industry trade associations along the West Coast to oppose state climate policies. The Affordable Fuel Coalition, a self-proclaimed grassroots organization that opposes the state’s carbon-pricing program, is led by at least one petroleum industry official, according to federal tax filings.

According to data from the California Energy Commission, the estimated gross margin for refiners and distributors in the petroleum industry in the state more than tripled from 2010 to 2022, from $0.47 to $1.58 per gallon. Calculating how much of the gross margin is profits requires further financial information for each company, which is not available.

Last month, California legislation created an independent division, the Division of Petroleum Market Oversight, within the state Energy Commission. It can penalize oil companies if it finds they are making excessive profits, and a penalty would not cause a rise in prices for consumers.

Nguyen said he and other Washington state lawmakers are drafting a proposal that would include a similar oversight structure. Companies would be required to share their information with the state under a nondisclosure agreement and be checked for unethical and illegal behavior.

Sen. Marko Liias, D-Everett, chair of the Senate Transportation Committee, said in a June interview the state attorney general should step in to protect consumers.

“There’s also some shady behavior that’s happening,” he said. “I hope that the attorney general is looking at this closely to make sure that they’re not using this as an excuse to fleece people.”

A spokesperson for the Attorney General’s Office said it has a “long-standing practice that we do not disclose active investigations,” but the attorney general “is committed to holding accountable entities that fix prices or illegally harm Washingtonians through price gouging.”