California refiners warn climate rules could shut down the industry

Oil companies say new rules cross a line

California’s oil refining industry is sounding the alarm.

Major companies including Chevron and PBF Energy have written to Gov. Gavin Newsom and the California Air Resources Board warning that proposed climate rule changes could wipe out what’s left of the state’s refining capacity.

The warnings land at a tense moment — gas prices across California have already climbed past $5 per gallon, driven partly by U.S. and Israeli military strikes on Iran.

CARB wants to cut millions of pollution permits

The California Air Resources Board released draft updates to its Cap-and-Invest program on Jan. 13, 2026. The program sets a declining limit on greenhouse gas emissions from the state’s largest polluters.

CARB proposed removing about 118 million carbon allowances from budgets covering 2027 through 2030. Fewer allowances mean fewer pollution permits available to refiners.

The goal is to keep California on pace to cut statewide emissions 40% below 1990 levels by 2030. A board vote is expected in the second quarter of 2026.

Refiners put a price tag on the rules

The Western States Petroleum Association cited an analysis projecting annual compliance costs for refiners could climb to about $1.5 billion by 2035, up from about $357 million in 2026.

Chevron warned the rules could add more than $1 per gallon to gas prices by 2030.

The company also said the oil and gas industry supports more than 530,000 jobs across California and contributes about $64 billion in federal, state, and local taxes each year.

Chevron added that fuel supplies to more than 30 military bases in the state could be at risk.

Environmental groups say the warnings are familiar

Environmental Defense Fund California director Katelyn Roedner Sutter said the industry has warned of sky-high prices before and those warnings have not come true.

CARB’s own economic analysis found the program would deliver about $180.7 billion in total statewide benefits, including roughly $123 billion in avoided health costs from cleaner air.

The agency put total compliance costs at about $124 billion over 20 years, calling that amount negligible compared to California’s roughly $4 trillion annual economy.

The Cap-and-Invest program has run for 13 years with nearly 100% compliance and has generated $34 billion for climate investments.

California has already lost big chunks of capacity

Phillips 66 shut down its Los Angeles-area refinery in late 2025. Valero Energy then announced it would close its Benicia refinery by April 2026.

Together, those two closures remove roughly 17% to 20% of California’s gasoline refining capacity. Seven major refineries remain in the state.

California Energy Commission Vice Chair Siva Gunda told state lawmakers in February 2026 that every refinery closure means a double-digit percentage loss of refined fuel, and the transition away from fossil fuels would not be smooth.

California gas prices were already the highest in the nation

California drivers pay more at the pump than anyone else in the country.

Higher state taxes, a unique cleaner-burning fuel blend, and environmental program costs all push prices up.

The Cap-and-Invest program currently adds about $0.24 to each gallon, according to the California Energy Commission.

The state imports about one-fifth of its refined petroleum, a share expected to grow as refineries close.

Limited pipeline connections to other refining regions leave California especially exposed when supply gets disrupted.

War with Iran sent prices surging nationwide

The U.S. and Israel launched strikes against Iran on Feb. 28, 2026.

Oil prices shot up almost immediately as traffic through the Strait of Hormuz, which carries about 20% of the world’s daily oil supply, came to a near halt.

The national average gas price jumped roughly 50 cents in the first week of the conflict, climbing to about $3.54 per gallon in early March 2026.

Brent crude briefly surpassed $100 per barrel for the first time since Russia’s invasion of Ukraine in 2022.

California drivers absorbed the biggest hit

California’s average gas price climbed past $5.29 per gallon in early March 2026, up from about $4.67 just one week earlier. Los Angeles County averaged above $5.34 per gallon, and some stations posted prices above $8.

Analysts warned that if the conflict continued, California could see averages approach $6 or more before the summer travel season.

The spike marked the highest California gas prices in nearly two years, arriving at exactly the moment refiners are fighting new rules they say will make their situation worse.

Newsom faces pressure from both sides

Newsom has spent years pushing stricter oil industry regulations, including a 2023 law allowing the state to cap refinery profit margins. He also set a goal to end oil extraction in California entirely by 2045.

But refinery closures have created a difficult spot for him, as he has also urged companies to keep plants running to protect fuel supplies.

His administration has disputed claims that state energy policies threaten national security, saying officials found no credible risks to military readiness.

Military readiness enters the fight

Chevron’s letter warned that losing more West Coast refining capacity would increase reliance on slower foreign imports during supply emergencies.

U.S. Rep. Vince Fong of California’s 20th District urged Newsom and CARB to pull back the proposal, calling it an existential threat to refineries and a risk to military readiness.

California is home to more than 30 military installations that depend on locally refined fuel.

Critics say growing dependence on fuel imported from places like Asia leaves both the state and the military exposed during crises like the current Iran conflict.

CARB vote expected this spring

CARB’s board is expected to vote on the proposed amendments in the second quarter of 2026. If approved, the new rules would take effect Sept. 1, 2026, with changes to allowance budgets starting in 2027.

The industry has called on CARB to revise the proposal before what Chevron described as lasting and irreversible harm occurs.

Environmental groups and some lawmakers want the state to tighten the cap further, not relax it.

How long the Iran conflict lasts could also shape the political debate, as high gas prices add pressure on state leaders.

California bets on a future it hasn’t built yet

No other state has attempted what California is trying to do: wind down fossil fuel refining while building a clean energy economy from scratch.

CEC Vice Chair Gunda told legislators the question is not whether refineries will close but when. State Sen. Suzette Martinez-Valladares said the state cannot collapse one energy system before the next one is ready.

The outcome of the Cap-and-Invest debate will shape how fast California’s refining industry shrinks and how much drivers pay for years to come.

This article was created with AI assistance and human editing.

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