The New Case for Ending Oil and Gas Subsidies in California – CA Climate Accountability Project

The New Case for Ending Oil and Gas Subsidies in California

Governor Newsom has not been shy about calling out the oil and gas industry for its anti-consumer and anti-climate agenda. He signed a package of groundbreaking bills meant to accelerate the state’s transition to clean energy, passed the nation’s first gas price gouging law last year despite ferocious lobbying by the industry, and has proposed eliminating some oil and gas tax breaks in his effort to address the state’s budget shortfall. Most recently, Newsom’s May budget revision directs funds to the California Air Resources Board to enforce landmark climate disclosure laws, S.B. 253 and S.B. 26, which is a big step for climate and corporate accountability in California.

As Californians grapple with skyrocketing energy costs and critical state programs face extreme cuts, the legislature can look to oil and gas subsidies and tax breaks buried in the state budget. 

Whether you’re feeling it at the pump during your morning commute or when paying your monthly bill to SoCalGas, we’re all feeling the financial squeeze. But while Californian’s energy prices have soared, oil companies like Chevron have enjoyed massive profits, and executives like Jeffrey Martin at Sempra/SoCalGas pocket over $25 million a year. SoCalGas even proposed a $4.9 billion rate hike while being accused of potential price gouging and market manipulation, and it paid $175,000 in penalties to the State of California for false marketing claims that natural gas is “renewable.”

Unbelievably, these same companies enjoy billions of dollars of state tax breaks and subsidies that contribute to California’s budget shortfall. Now we have a chance to fight back and break the grip oil and gas have on California politics, but we need Governor Newsom and state lawmakers to back people over polluters. 

A large group of environmental organizations is calling for the elimination of oil and gas subsidies, an estimated $8 billion every year in rebates, tax cuts, and other handouts from the state. That’s the equivalent of each Californian shelling out around $900 yearly to prop up an industry already reaping record profits. It has to stop. 

Governor Newsom’s budget eliminates $22 million in oil and gas subsidies, but leaves untouched a $4.3 billion break known as the “water’s edge” provision that applies to earnings outside the jurisdiction where a company is based. As the legislature considers balancing the budget, it should consider these tax credits and subsidies that benefit oil and gas: 

  • The Water’s Edge Election ($4.3 billion for all industries): Permits international companies to limit their taxable income in California solely to their earnings/operations within the U.S. and selected entities, avoiding taxes on global earnings.
  • Research and Development Credit ($3.1 billion for all industries): Allows companies to receive a tax credit for their research expenditures.
  • Accelerated Depreciation of Research and Experimental Costs ($90 million for all industries): Allow companies to choose whether to deduct research and experimental costs immediately or spread them over five years.
  • Combined Corporate and Personal Income Tax: Depletion of Mineral and Other Natural Resources ($10 million) and Intangible Drilling Cost Expensing ($8 million): Allows companies to claim deductions for depleting natural resources and for drilling costs.
  • Sales Tax: Exemption for Manufacturing and Research and Development Equipment ($495 million for all industries): Allows companies to avoid paying sales tax on equipment used for manufacturing and research.

It’s past time for California to shift its attention toward affordable, clean, and sustainable energy. By ending oil and gas industry subsidies, we signal a commitment to a greener future and reduce the industry’s grip on our state’s policies. To understand the ties between lawmakers and fossil fuel companies, explore CCAP’s climate scorecard. You’ll find out the companies making campaign contributions, the legislators accepting them, and how these legislators vote on key climate legislation.