June 16, 2025 • 49 mins
California has the highest gas prices in the country, and they may rise even further. USC Professor Michael Mische drew attention with a projection that upcoming refinery closures could push prices past $8 per gallon. In this conversation, we explore what’s behind California’s fuel costs from shrinking in-state production and growing reliance on imports to the state’s unique regulatory structure. Professor Mische challenges the narrative around price gouging, outlines trade-offs in the state’s energy transition, and shares what better policy could look like.
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Apple: https://podcasts.apple.com/us/podcast/california-future-society/id1807612672
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Chapters
00:00 – Intro
04:37 – California’s Petroleum Industry
09:47 – Why Is California’s Gas So Expensive?
13:49 – The Electric Transition in California
16:56 – Refinery Closures & Projected Gas Prices
30:15 – Political Reactions & Public Criticism
39:47 – Policy Ideas for a Sustainable Transition
47:26 – A Hopeful Future for California
California, gas prices, refinery closures, gasoline market, energy policy, environmental policy, energy transition, oil and gas industry, fuel supply, price projections, future gas prices, economic impact, supply and demand, market elasticity, replacement cost, production capacity, foreign oil dependency, energy imports, in-state oil production, regulatory challenges, California Air Resources Board, CARB, cap and trade, low carbon fuel standard, excise taxes, underground storage tank fee, mileage tax, emissions policy, clean air standards, climate regulation, vehicle electrification, internal combustion engine ban, refinery consolidation, maritime fuel transport, pipeline access, California-compliant fuel, Asian fuel imports, Saudi oil, Washington state refineries, energy independence, USC Professor Michael Mische, California Energy Commission, CEC, Governor Newsom gas prices, price gouging accusations, academic freedom, public data analysis, state energy policy, federal energy policy, Vision 2030 Saudi Arabia, energy forecasting, political narrative, public backlash
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:01):
We will have lost 21% of our in state production capacity for
gasoline. The answer was, yeah, prices are
going to go up. We we are totally dependent on
basically maritime transportation of fuels into the
state, but we have no inbound pipelines.
The markets I think are looking really closely though saying,
all right, where's California going to source this stuff.
(00:22):
I love California. We're the smartest state.
We have some people, We have some of the best technologies,
some of the best minds. Hello, everyone, and welcome
back to the California Future Society podcast.
I'm your host, Jerrett Catlin, and this week I speak with
Professor Michael Mache from USC, all about the future of gas
prices in California. It's a hot topic, and it's fun.
(00:42):
That was made even hotter by Professor Mache in May when he
published 2 papers, one of whichprojected that due to the
closure of two major refineries in California, that's scheduled
to happen in the next two years,gas prices could climb as high
as 6 or $8 a gallon. Now, there's been a lot of
dispute over those numbers. Even the governor himself has
weighed in. We talk about the controversy
around the paper and a politicalresponse in our conversation,
(01:07):
and regardless of how you feel about those specific
projections, I think it's a really interesting conversation
because it comes at an interesting time in California's
trajectory. California has for a long time
been a national leader in oil production.
More recently, in the last 50 years, we have been a national
and international leader in reducing greenhouse gases and
trying to reduce carbon emissions, reduce smog, and
(01:28):
we've been incredibly successfuland we've set global standards.
The state legislature even recently passed a rule that no
new internal combustion engine cars could be bought starting in
2035. The state is fully pushing ahead
towards the goal of electrifyingthe state.
However, transitioning from where we are today to that
brighter, greener future is challenging.
(01:48):
It comes with a lot of policy trade-offs and questions and
uncertainties about how we navigate where we are today to
where we are hoping to go in thefuture.
And so I enjoyed being able to speak with Professor Mache about
the state of affairs in California, what is unique about
our gas markets, where we're going in the near future, and
what Californians should expect.So I enjoyed the conversation.
(02:10):
I hope you do as well as always subscribe wherever you're
listening to this or go to californiafuturesociety.com to
subscribe as well. And with that, here's Professor
Miche. Today I'm joined with Michael.
Miche, I'm really excited to talk to you today.
How are you doing? And start off all my
conversations. I'd like to ask what's your
connection to the state of California?
I'm doing great, thanks for having me.
(02:31):
Really excited to be here and I think I can claim myself to be a
native Californian. I was born overseas, so the
first place I entered the UnitedStates was Fort Mason, San
Francisco. So as a little baby, my mom
carried me off the ship and saw my first place in California was
(02:53):
San Francisco. So I do consider San Francisco
my sort of my home And, and, andof course, I've spent more than
half my life in the in the Golden State.
Beautiful. And where's your family
originally from? All over the place.
I lived in California, a little bit of Pennsylvania, New
England. I grew up predominantly in on
(03:17):
the East Coast and you can tell by my accent and and also was
educated on the East Coast. But the first time I had the
opportunity to come out to California was in the 80s, which
I thought were the greatest years of my life, living in San
Francisco and working for KPMG. And then also coming back in 97
(03:38):
to be on the faculty of the University of Southern
California, which is also one ofthe greatest periods of my life.
So blessed twice by the Golden State at least.
So give give you you mentioned your consulting background and
then also you've been on the faculty for is it 25 years or so
now at at Marshall School. Up there, yeah, 728, I don't
know. I got to do the math.
Yeah. Well, what type of topics have
(04:00):
you typically focused on and, you know, classes that you teach
and things like that. What what we'll talk about all
the energy stuff and gas prices that in a recent paper, but you
know, over your time, your career, what type of things are
you focused on? Well, I've, I've always taught
transformation innovation from the CEO perspective, not as the
innovator, but as the person whois leading your organization or
(04:21):
a country and how do they moderate all the innovation type
projects and investments that they do and they make it and
then management consultant. So those are the three classes
that I've taught consistently for all these years.
Wonderful. Well, the main topic I wanted to
dive in with you is a recent paper that you had put out that
(04:43):
caused quite a bit of a stir on gas prices.
Can you talk about that, the origins of it and we'll get into
the content so far, but just dida high level overview.
Sure. I mean, I followed this industry
since 1973. This is my academic interest.
Purely academic. I've done some work in the
industry off and on over the last goodness 50 years, but not
(05:07):
consistently. As an employee or consultant to
the industry's purely resident research related, I fell in love
with the economics of the industry in 1973 with the Arab
Israeli war and the oil embargo and, and how it hit the United
States and the the price increases that were associated
with that was a phenomenal period of time.
(05:28):
Anyway, I got really involved with that and just loved
studying it for the forever. It's, it's a true love affair.
The work on California was I wasalways interested in California.
The petroleum industry in the state is and was absolutely
instrumental to the state. Without the petroleum industry,
which began commercially here inthe 1860s, you really wouldn't
(05:53):
have the infrastructure built, the agriculture built, and a lot
of things that we have in California without the petroleum
industry. So I was always interested from
an economic standpoint, how did that industry impact our state
and in what, you know, what parts of it drove us to become,
you know, literally the 4th or 5th largest economy in the world
(06:14):
in the dominant state in the United States for economic
output. So really exciting for me to
look at it. And, and now you have tech and,
you know, we, we go through cycles and phases, but
underneath the wall is petroleum.
You know, we really can't make infrastructure without
patrolling. We, we can't make asphalt
without patrolling, we can't make concrete, we can't make
(06:35):
steel. So it becomes a really important
part of our infrastructure. And in something I just was
always excited in for this particular study we worked, I
began this study over 14 months ago.
So it's about 14 months of work beginning back in 2025, early
20, sorry, early 24 January, February period.
(06:59):
And it was a constant stream of research, research, research
data, data data that brought us up to the March 16th report
which concentrated on price gouging and included one the
closure of 1 refinery. And then subsequent to that
report, all of a sudden Valero decides to close down in
Northern California. So that precipitated us a
(07:23):
supplement to the first report and that one is dated May 5th
and they both received quite a bit of attention.
I wish some of my other work hadreceived so much attention, but
certainly it's received a lot ofattention and it's really
interesting how you know how people react to this.
In the first instance, we lookedat oil and gas industry
(07:48):
production consumption all the way to branded versus non
branded premium versus regular versus mid range fuels all the
way back to 01972. And we were looking at the
prices and how California pricesdifferentiated from that of the
rest of the country. And then you know, we sort of
saw a beginning of this wideningof differentiation.
(08:11):
And the question was why was that?
And that was very, very curious to us.
And then the second thing was all these allegations of price
gouging. And, and so we we looked at
refineries and we looked at refiner margins and we looked at
cost of crude, we looked at wholesale prices of, of gasoline
to the distributors from the refiners.
(08:32):
And, and we found no economic evidence of refiners engaging in
price gouging. I mean, there isn't any.
Yeah, you can, you can scream about it all you want and make
up all the things you want to make up, but there simply is no
compelling economic evidence forthat.
And, and it's not really just mystudy that that brought that
out. The California State attorney
(08:54):
general has studied this 8 or 9 * 7 eight or nine times going
back to at least 2000 and hasn'tfound price gouging on the part
of the refiners. The Federal Reserve System
studied it out of the Dallas bank, I believe, and hasn't
found price gouging on the part of the refiners.
The FTE looked into, FTC looked into it, along with I think one
(09:16):
of the courts in San Diego, and unilaterally, no, none of us has
found price gouging was attributed to the refiners.
Now, there was an instance of price gouging attributed to
traders. That's an entirely different
issue in, in, in beyond the scope of the work we did.
But we found no price gouging onthe part of the refiners, which,
you know, is contradictory to the popular political narrative
(09:39):
that the price that the big oil's gouging the heck out of
people. Well, it doesn't exist.
It's not there. That proof is not there.
Well, it's a, it makes sense. It's a hot topic.
I know. I mean, for my entire life, you
know, as a Southern Californian,I mean, energy and particularly
gas prices are, are, are a huge issue for people, particularly
as the, the state becomes less and less affordable and people
(10:01):
are, you know, just trying to get by.
And, and the, the narrative of people, you know, getting killed
at the pump, you know, KTLA or other local news sources that
you watch the gas prices, any spike in gas prices gets a lot
of attention, particularly as a lot of people rely on on gas
powered cars to get around. So it makes sense that it's a
hot topic, one that you'd want to look into.
And before we dive into some of the specifics of the paper, I'm
(10:24):
curious if you could just lay out like a one O 1 of why is
California's gas price is different to begin with.
If someone doesn't know the dip,the basics of the petroleum
market, how it's structured, andsome of the regulatory regime
that we have in California, why in the 1st place is California
gas more expensive than most of the rest of the country?
Yeah, happy to go over that. One is we have a special blend.
(10:46):
So the the formulation of gasoline that we burn in our
cars in California is different than you would buy in Nevada,
Arizona, Texas, Pennsylvania, any other place.
So it's a very unique blend that's specific only to
California. So that that's one attributing
attribute. Secondly, we have no pipelines
(11:09):
coming into the state. So we, we are totally dependent
on basically maritime transportation of fuels into the
state. So we have no inbound pipelines.
Third, we've had a 68% reductionin refineries over the last 30
years where at one time we had over 30-40 refineries, I think
43. We're now down or will be down
(11:32):
to 7 in April making California gasoline.
So the refiners have consolidated and they've also
exited the state and in that in itself is an issue.
Then we have all the taxes and fees that are levied on it.
So California has the highest excise tax in the country.
We have cap and trade which is extraordinarily high.
(11:54):
We have a new low carbon fuel standard coming into play, which
will increase the price of gas and we have the underground
storage tank fee along with a new cost related to inventories
for gas. So, so simple matter is supplies
is coming down, the demand has remained relatively the same,
(12:16):
but the regulatory costs have actually gone through the roof.
And when you say the special blend, that's due to desire to
reduce emissions, correct? That's kind of a special blend
that yeah. Can you explain that a little
more? Yeah, that's correct.
So as far back to the 1940s, we saw fault and smog in Los
Angeles. At least there's historical
reports for that. As old as I am, I wasn't around
(12:37):
for that. Even even me, as young as I am,
I had some smog days growing up in elementary school.
Not as much as my mom reports out in the Inland Empire, but
yeah, I had a couple growing up.Yeah, there's no question we've
had an air quality problem for, you know, almost 80 years now.
But in the 60s we attacked that.We being the state, the
legislature attacked that under Governor Reagan and and so the
(12:59):
California Resource Board was essentially formed which began
to systemically address tailpipeemissions and the quality of
air. And without question their work
has been fantastic. I mean, they have brought down
the emissions and improved the quality of air.
(13:20):
The question that we have now is, will more legislation which
adds more cost really improve the air by that much?
So it's kind of a point of dimension returns if one could
argue for that. But no, there was no question we
needed some significant intervention that occurred I
think in 6667 and and and then California began implementing
(13:45):
standards for fuel and standardsfor tailpipe emissions.
Yeah, it it seems like a core part of the California identity,
politically at least, is leadingthe nation in, in environmental
laws and rules for better and for worse, you know, and, and
setting those, those standards, it often times can go national.
And it seems like, Now tell me this is an unfair description.
It seems like the ambition is still there.
(14:05):
The desire to be the national leader is there.
But when it comes to particular refineries, we're in a really
precarious or awkward transitionpoint where the state has set an
explicit goal of, you know, electrification and banning the
sale of new internal combustion engine vehicles by the 2035 I
believe. So we're on this path towards
(14:27):
electrification and reducing fuel usage in the spirit of
California leading the nation. But that glide path of what it
looks like between here we are today, where we are today and
and where we're going in the future seems like it could be
potentially rocky. Is that a fair description?
I think, I think it's a very, very fair description and, and
it will be rocky, you know, a couple of things.
The 2035 band goes back to some legislations that were
(14:51):
established almost 25 years ago.And then the, the, the goals, if
you will, the targets for the quality and the emissions have
been reset periodically. So we're at A, at a point where
I think Governor Newsom had had his executive order on the ban
of internal combustion in new cars, the sale of new cars by
(15:12):
2035. Now from a, from a refiner's
perspective, not to mention the gas station owners, the 10,000
people, 10,000 gas stations in the state that employ 174,000
people, that's taking away the market.
I mean, you're basically legislating the market away.
(15:32):
And so if you're a refiner, a gas station owner, operator,
you're sitting around saying, well, what am I going to do with
these assets? Because literally the market is
going to be legislative away from me.
And and so where am I going to sell my product, which is only
specific to California and I have no pipelines that even ship
them out of the state if I wanted to remain in business.
(15:54):
So it's quite a dilemma right now that's been created by that.
Now President Trump has stepped in and interceded and apparently
assigned these the, the bill rolling back the ban on 2035.
And I'm sure I'll go to litigation and things like that,
but that's a, that's a huge hurdle.
And then you have a whole litanyof regulatory issues associated
(16:17):
with refinery and oil and production in the state.
We have adequate reserves of ourown oil here in the state.
I mean, we are an oil rich state, but we, but we import 63%
of our oil from foreign sources including Iraq and Saudi Arabia,
Ecuador, Guyana and Brazil in particular.
(16:37):
So we're highly dependent on these foreign sources of oil
which also use massive oil tankers, maritime transit, which
contribute to greenhouse emissions by the way.
And, and so it's, it's quite a dilemma that California has kind
of inflicted upon itself. So we're in this dilemma like
(16:59):
you're saying at the outset, we have this the Phillips 66 six
refinery that's closing down andthere's also the Valero is it up
in Benicia, I believe, Yes, refinery that's going to be
closing as well. And then as part of the addendum
to your paper, you're saying youcame out with some projections
of what prices could potentiallyget to and those were kind of
the eye popping thing that caught a lot of attention.
And can you, can you walk us through those numbers and, and
(17:20):
how you got to that? Sure.
OK. From 2023 potentially 2026,
April 26 when Valero's scheduledto shut down, in effect they'll
be, they'll be shut down before that.
All right, that's, that's when the sign goes on the gate
closed, we will have lost 21% ofour in state production capacity
(17:43):
for gasoline. My predictions were about 9.6
million gallons a day of lost instate production.
The CEO. Out of how many roughly?
Just going to give the 20% context, losing 9,000,000 is out
of what's our total roughly I guess.
We consume, we consume about 33 million.
OK. OK.
Thank you. All right, so on average, but
(18:04):
remember consumption and production, you know, we try to
keep them in balance, but they are different.
OK, So this is a significant hit.
I mean, you lose 21% of your production, you got to make up
for it someplace. But that was about 9.6 million.
Just a few weeks ago, the CEOPBFcame out marathon PBF and said,
(18:26):
Gee, we think it's more like 10.5 million gallons of gas a
day. And, and so the question, the
question then becomes Californians, we're not going
to, we're not going to stop driving and reduce our
consumption by 10 million gallons of gas a day, not in,
not between now and April, not unless catastrophic event
occurs. So the question then becomes,
(18:47):
well, well, how do you make up for that?
Where you going to find the gasoline and, and, and how much
is it going to cost? And, and, and so when we went
into our, our models and we built 25 different models for
this, we said, all right, where,where can we most likely source
this petroleum or just the gasoline products that would be
(19:10):
probably in Asia, which would beSouth Korea, Japan, Singapore,
China, even India, even as far away as Saudi Arabia that have
refineries that can make California compliant gas.
Now, when you're buying the gasoline from those refineries,
you know, it creates a lot of secondary issues.
For example, if you're buying itfrom China, their oil comes from
(19:33):
Iran and Russia and Venezuela, all sanctioned countries.
So you know, it's, it's a world economy, you know, for
petroleum, it always has been. And so issues are created,
secondary issues are created. So you have to transport that
across the ocean anywhere from 40 to 45 days on a major tanker.
(19:56):
Then you have to stay offshore for drayage and then you're
finally brought into port and you can unload.
So what we factored in was alternative sources for that
gasoline, the price of that, theprice of transporting those
alternative sources to the United States, because remember,
you're buying finished gasoline.So whoever makes it is going to
(20:19):
have their profit built into it.They're going to sell it to a
distributor here in California who has to add a profit on.
So as the CEO said from PBF, it's going to come at a higher
cost. So the same gallon of gas made
in California versus the same gallon of gas imported, chances
are the imported cost is going to be higher than the in state
(20:40):
cost. And so we, we factored that in
then we factored in the automatic increase in the state
excise tax. The state excise tax goes up
every July 1st. So it changes every July 1st,
but it's not based on Californiagasoline prices.
That's the interesting aspect ofit.
(21:02):
The excise tax in our state is based on the California Consumer
Price Index, the CPI. So if the CPI is up 3%, you can
expect a 3% increase in the excise tax.
So it's going to move from 59.6 cents to probably 6262.3 cents
(21:24):
on July 1st, somewhere in that range.
Then you have the new legislation for inventory of
gasoline storage. Legislation was passed requiring
the refiners to store X amount of gallons of gas or X day
supply. Well, think about it.
If you're burning 30 million gallons of gas a day and you're
asking them to to keep 10 days supply of finished goods
(21:48):
gasoline, that's 300 million gallons.
Where are they going to put it? They don't have excess capacity
for that. So somewhere they have to find
it or build it, but who's going to build it because you're out
of business in 2035. So, but we factored that in and
then we factored in the new low,the new low carbon fuel
standard, which CARB had originally come out to be $0.47.
(22:14):
They retracted it ostensibly because of public blowback.
University of Pennsylvania has it from 80 to $1.38 a gallon.
We had it from 57 to 63 a gallon.
And then you have cap and trade,which is a big one, $0.50 on
(22:35):
above per gallon. And then the federal excise tax
of $0.18. State and local, I'm sorry,
local and county taxes about 3.07% and and then the federal
excise tax of 18% in undergroundstorage.
Add it all up you you're going into the year with $1.80 in
(22:57):
taxes and fees associated with every gallon of gas produced in
California or sold in California.
And how much of that is new? Like how does that compare to
the current? Yeah, that's net new, $1.80 net
new or. It's debt Debt.
Dollar 80's today. OK, that's today.
Got it. OK.
That's what we're currently paying when we go to the pump.
(23:18):
Yeah. Yes, and that's, that's federal
and state and all, all taxes andfees included about $1.80.
Most of that is all California dollar 64 of California.
So they're they're not changing in, in, in, You know, one of the
controversial points of the paper is very simple.
If the price of oil went to zero, I mean went to zero, we
(23:40):
would still have the highest cost of gasoline in the country
because we have the highest taxes and regulatory costs in
the country. And, and so I, I, I can
understand where, where some of the, the, the, the politicians
react negatively to that, but that's the reality.
That is the math. Yeah.
(24:01):
Well and tell me more about there's eye popping figures on
like the potential per gallon cost by I think it was 2026 when
some if, if we were to experience both refineries
closing at 20% reduction in capacity.
How did you get to some of thosenumbers?
Well, we, we, we built it up through the replacement cost of
gasoline transfer rates, transportation rates to switch
(24:24):
over to the new California low carbon fuel standard.
And then something called the elasticity effect, which is if
the price, if the the supply goes down, but demand remains
relatively constant, what will happen to the price.
And, and so we looked at, we calculated that number and then
we also looked at various crude oil prices.
(24:48):
So what would the refiners, the surviving refiners in the state
might buy their crude oil at? We looked at three or four or
five different ranges of crude oil prices.
I mean, and, and so that's what we came up with this rather
large range of six O 4 to 843 depending on, you know, a lot of
variables that might happen in the world.
But but there you go. It's it's at that level.
(25:10):
And that elasticity piece, forgive me for getting a little
wonky here are are nerdy, but I noticed in the paper it, it
seemed like you were keeping demand relatively constant.
But if we were to experience a, a spike into the $6 range, you
know, I assume that there would be some elasticity of demand,
meaning that, you know, some people have to drive regardless,
but there would be others who reduce their usage, reduce their
(25:31):
consumption given in response tothose prices.
I've seen some papers put it at like, you know, .6% or something
like that, yeah. Yeah.
I, I mean, we, we looked at 1% reduction in consumption up to
3% reduction in consumption, OK.And, and then we also increased
the surviving refineries in the state, the only 7 left by by
(25:54):
three, five and 10% production increases in all scenarios, even
if it comes down and production goes up, we're short gasoline.
OK, just a mathematical, so I mean, it's just simple stuff.
It's short. The question is where do you get
it? OK.
And, and, and typically when we,when we've gone short, we've
(26:15):
gone to Washington state. They've been pretty good at, I
mean, they, they can produce California gasoline and, and
they constantly export California gasoline to us.
However, they don't have the capacity to cover what we need
as a result of the shortfall of in state production.
And and what I mean by that is about 53% of Washington state
(26:38):
refinery production goes to Washington state.
They they consume it themselves.About 40% gets exported to
Oregon. Oregon is almost entirely
dependent on Washington State for its gasoline and we get
somewhere between 5 and 7%. So, you know, we can't go to
(27:01):
Washington state and say, oh, weneed 4 or 5,000,000 gallons of
gasoline a day from you because they simply don't have the
capacity without either droppingtheir own in state production
quotas or their out of state allocation to Oregon.
So that's that. That becomes a problem.
So we have to go most likely to Asia, which creates a whole
(27:25):
litany of other problems relatedto greenhouse gases because
apparently, as the CARB chair admitted in testimony last week,
they don't look at the entire effect of greenhouse gases.
So if it's produced in Saudi Arabia or, or in China, you
(27:46):
know, comes over here mythicallyon a boat that doesn't produce
any greenhouse gases. But we all know that that's a
fantasy. There are greenhouse gases
produced. So, so the issue is, is the net
effect of procuring this gasoline 6000 miles away and
incurring greenhouse gas emissions all the way along is
(28:07):
that is that more desirable thanproducing in the state of
California? And, and that yet that has yet
to be resolved. Surprisingly, they don't study
and, and they admitted it. The second thing that was
admitted by the chair of Vice Chair Gunda of the CEC was when
asked directly, are prices goingup?
(28:29):
The answer was, yeah, prices aregoing to go up.
So, you know, will they go up asmuch as, you know, our models
indicate? I don't want them to go up that
much. I don't, I don't want to be
right, but they're going to go up.
It only stands to reason that given where we're at in
consumption, they're going to goup relative to demand that it's
(28:50):
just reasonable to make that that that logical leap.
I saw a betting market figure where that had a 70% odds of, of
prices going above $5 by the endof the year.
You know, it's, I didn't know the liquidity on that specific
or how many people are actually trading on it.
But you know, newfound features,technologies you can use to bet
on these types of things that are publicly available are
always fun to check out. How, how do those comparisons of
(29:13):
actual prices at the pump compare?
But anyone else tried to model out, hey, if we if we experience
these two refinery closures, youknow, we can estimate it to be
roughly a different number? As far as I know, I was the
first to try to model it out. I know, I know the CEC has been
asking for some of the equationsand some help in in their model
(29:35):
of it that should have to be resolved whether or not we'll
provide those equations to them.But as far as I know, I was the
first to put that out. And again, it's not whether it's
right or wrong, you know, I don't want to be right.
I don't want to see $8.50 gallon, you know, gasoline, it
that hurts a lot of people. It's it's disproportionately
harsh on lower income working class families and fixed income
(29:58):
folks. So, you know, I don't want to
see that. The point is, you know, we're
losing 21% of in state production.
The question is how you going toreplace it and how much is it
going to cost? You know it's going to cost
more. Yeah.
And if you keep adding regulations, you're only adding
to the cost burden. Yeah, yeah.
Well, I mean, I know those numbers, 850 figure caught a lot
(30:20):
of made a lot of headlines and got some even reactions from the
governor himself. Tell me more about the political
reactions and then tell me about, I'm curious too about
sharing the models with CEC because I know that one of the
critiques was that, you know, the paper didn't include the
models and so it was hard to kind of verify some of the
numbers. How I'm curious both the
political side of it and then also on the models, how that
how's that been? How's your life been the last
month? You know, it's been fine.
I mean, you know, you took a lotof criticism from the governor,
(30:43):
which I was quite disappointed in the governor.
You know, I mean, if you had anyproblems or you had any
questions, you could have calledup.
I mean, you literally could havesaid, hey, Michelle, you know,
what are you doing here? I don't understand these
numbers. They don't make a lot of sense
to me. I, you know, I disagree with
you, but hey, can you come up toSacramento and walk me through
it? I mean, if, if he had done that,
I, I would have literally walkedto Sacramento, flown to
(31:05):
Sacramento, done everything I could to support those
questions. And whether he agreed or
disagreed at the end of that, atleast he would have had the
benefit of sitting down and understanding the logic that
went into the paper. The second part of that is the
data was all their data. I mean, most of the data came
out of the CC or the US Energy Information Agency.
(31:27):
So there's no clandestine data here.
It, it came directly from, from public sources in the paper we
provide, where I provide more appropriately, a number of
exhibits that show a progressionof costs.
Those exhibits are itemized as to what the components are.
That's a good starting point forthem.
(31:51):
But I'm not, you know, I'm not compelled under any academic
standards or or even professional to, to disclose the
algorithms. The algorithms themselves are,
are somewhat proprietary. I, I had intended to, to go, to
go up to Sacramento and work with the CC.
They had, they had asked me to work with them and, and, and so
(32:12):
we sort of had this tentative agreement in place to do that.
But then Governor Newsom came out with all these allegations
about being on the payroll of Saudi Arabia.
Yeah, tell me about that. Yeah.
Now we'll get to that and and you know, the paper doesn't have
this. The paper doesn't have that.
And and then he had a couple of apparently so-called journalists
(32:34):
make a, you know, write a few less than desirable pieces on
me. But I mean, you know, had he not
done that, I would have been in Sacramento today working with
him. But unfortunately it went the
political route. And I'm not a political figure,
so I'm not quite sure really what precipitated this.
I mean, in my opinion, he had a temper tantrum and it was quite
(32:58):
childish and very unstatesment like.
And I'm thinking, my goodness, you know, if he reacts this
badly to a professor writing a paper, what's he going to do if
he's elected president and he's confronted with a real problem?
So, you know, it got me thinkingalong those lines.
But but I was disappointed in his, in his behavior and his
(33:21):
reaction. And I think, and I think any
academic should be, should be scared to death of that
reaction. And yeah, should be absolutely
scared to death of that reaction.
Has there been any market reaction, you know, given I
assume that you know something 6to $8 a gallon would would
change consumer behavior in certain ways.
Has there been any like market projections or pricing that in
(33:43):
or any other reflections of thatand you know, futures markets or
things like that? No, I haven't followed that, but
I can tell you what people because, you know, I part of
this is I've, you know, been on podcast and I've been on news
and things like that. And, and you know, so
occasionally somebody will recognize me and go, oh, aren't
you the, the gasoline professor?Yeah, yeah, I'm the guy.
(34:04):
Oh man, I hope you're not right.You know, we, we, you know,
what's really going on? Are we really losing these
refineries? How did that happen?
You know, how could that happen that we lose these refineries?
And I'm like, well, you know, here are a few of the reasons.
So I think in, in, in, in, in some regard, it's it's certainly
high heightened consumer awareness.
(34:24):
The markets, I think, are looking really closely though,
saying, all right, where's California going to source this
stuff? Because if you source it from
China, you're buying gasoline that's made with Iranian oil.
You're buying gasoline that's made with Russian oil.
You're buying gasoline that's made with Venezuelan oil.
OK. Those are contradictory to the
(34:45):
policy of the United States at this point.
Yeah, if you go to India, you'rebuying it predominantly with
Russian oil. If you go to if you go to Japan
and South Korea, that's going tobe Saudi oil.
What? Saudi oil is fine, but because
Saudi Arabia was the first or second largest source of oil
imports from California for years, for years we've been
(35:07):
importing oil from Saudi Arabia.So there are these secondary
concerns related to human rights, national security, which
type of government do you want to support?
Things like that. When you when you start, when
you start going overseas and looking for gasoline, not not to
mention their their refining standards aren't anywhere near
(35:29):
ours. So, you know, we have some of
the finest refineries in the world sitting here in
California. Yeah.
We're ranked on what's called a Nelson score.
And and we know we have tight, tight control over greenhouse,
greenhouse emissions. You're not going to find that in
China. Yeah, it's not even close.
Or India. Yeah.
(35:49):
It's an interesting time for thestate because like you're saying
at the outset, this is a oil production and refineries have
been a key part of the Californian identity,
particularly in Southern California.
It's not something that people today think about.
But, you know, the first big boom in Southern California was
oil production. There's still a lot in Kern
County. You can still see the occasional
Derrick down in Signal Hill in aLong Beach area.
(36:10):
And certainly if you look at historical photos, there's a lot
of that. So, you know, thinking about the
pathway forward of a state that's, you know, transitioning
away from it and what that lookslike for the refiners will be a
remarkable time. Yeah, Think about California in
terms of some of the the Seminole names, Doheny, you
know, Stanford, Crocker, you know, the list goes on.
(36:34):
And these were all fortunes thatwere that were built either
directly or tangentially by oil,OK.
And, and, and so the the fortunes of California as we
drive down the street and we seesome of the names on the streets
are built. Those are all related to the
California oil boom of of about 100 years.
(36:57):
And and don't forget the California oil supplied the
United States fleet during WorldWar 2.
I mean, without the oil fields here, it would have been very
difficult for those fleets to have all the diesel fuel and
aviation fuel that they needed. So California has played a
prominent role in in national security in many, many ways, in
(37:17):
particular the petroleum industry.
Yeah, You know, I mean, people will say, are you a petroleum
advocate? And the answer is no, I'm an
advocate of good policy. Yeah.
I, I have no vested interest in in any petroleum company.
Unlike CalPERS, the state's largest pension fund, I don't
own a billion dollars a stock inin Exxon Mobil or some of the
(37:41):
other petroleum companies. You know, with respect to Saudi
Arabia, the, you know, it, it was almost hilarious accusation
because the work that was done in Saudi Arabia was years ago
and it was all related to Vision2030.
And if you know anything about Saudi Vision 20-30, the work
(38:02):
that I did was all related to the diversification of the Saudi
economy away from petroleum. It had nothing to do with
petroleum. It was the antithesis of
petroleum. And, and in the, in the outcome
of that was the big idea, if youwill, was to create a, an
innovation superhighway, which would allow Saudi investment to
(38:24):
come to the United States very quickly to invest in industries
and concepts and technologies that could be brought back to
Saudi Arabia to diversify its economy and increase its
employment base outside of oil. And, and so the work was, I
mean, completely related to that.
It's been proven that it's been worried today.
(38:47):
I, I will say it can't release the the details, but an
investigation was performed and the investigation came up
exonerating any of those accusations.
Got it. Yeah.
And you know, if you were arguing that closing refineries
would hurt California gas pricesdoesn't help the Saudis, even if
it even if they're so it doesn'tthe logic there doesn't make
(39:08):
sense, but it's. It's absurd.
Yeah. We're on the Saudi payroll and
be going. Yeah.
You know, closing refineries andgas you want, Right?
Yeah. And you'd probably have a bunch
of people like me rowing the boats over, right?
Yeah. To reduce greenhouse emissions.
I mean, it's an absurd claim andit was just thrown out there to,
to, to distract from the, the quality of the research, the
(39:29):
quality of the work. I, I will say that among the
industry experts, including WallStreet experts, the, the, the
reaction to the both research papers has been just some of the
best stuff we've ever seen. And so that was kind of nice to
get back while I was hearing from the governor that it was,
you know, not very good. Yeah, But yeah.
And tell me, you mentioned good policy.
(39:50):
You know, so California is on this path towards
decarbonization. The politics of that aren't
going to change. And that's pretty popular.
A lot of people feel like that's, you know, and big, big
oil for, you know, is not the most politically popular and
won't be, I think, in in the next 100 years in, in given the
legacy of carbon emissions. And So what does good policy
look like for California's leaders managing this transition
(40:12):
towards decarbonization? What would you like to see
coming out of Sacramento? Well, in the May 5th paper, we
gave them 10 action steps to follow and, and, and those
action steps were entirely, entirely designed or intended to
keep the refineries operating. And with, with the provision
though that you know, we want probably some type of the 2035
(40:36):
move back to maybe 2045 or 2055.I mean, we're, you know, there's
no doubt we will be out of petroleum, which is the whole
reason for Saudi Arabia recognized that in 2017 sixteen
with their 2030 vision statement.
They know that their economy will not survive solely on
petroleum in 100 years. And so, so I think we need a
(41:00):
more realistic phase out period.Second, we need a rollback of
some of these, some of these regulations, including the new
low carbon fuel standard. Nobody knows how much that's
going to really cost. We're all sorting, you know,
estimating the best we can, but we know it's going to increase
their price of fuel. Maybe maybe roll that back.
(41:22):
We have a lot of oil in state, maybe become a little less
dependent on Iraqi oil, Saudi oil, Brazilian oil, Guyana oil,
which is, you know, kind of in dispute as a Venezuelan oil, as
a Guyana oil. All right, and and maybe
increase some of our own in state production.
And I think that would be not a bad idea given the fact that it
(41:42):
would create a lot of jobs and and additional income,
additional revenues for the state on the provision on a
very, very, very specific provision.
What, what I'd like to see the legislature do is if, if indeed
they, they, they move in the direction of allowing in state
producers to produce more oil here.
(42:02):
I would like to see them allow that under the following
condition. Whatever you produce in
California stays in California and in, in that, by that I mean
it goes to a California refinery.
It's made into California gasoline and it's sold to
California gasoline dealers. Any, any violation of that, you,
(42:26):
you, you're in real trouble. And, and, and part of parcel of
that, and I was accused of trying to create loopholes and
all no, is give them an investment tax credit.
You have to give these refiners and producers a reason to stay
in the state. If you're saying you're done by
2035, they're not going to invest in anything.
(42:47):
And in one of the things that's sort of hard for some people to,
to, you know, really kind of understand is that a refinery is
a capital intensive asset. It requires millions of dollars
a year to to maintain and every four or five years you're
spending a couple of 100 millionto to really turn over the
(43:10):
technology and the refinery. So, so if you're sitting here as
a refiner and and let's say you're your next major 100
million dollar $500 million turnover investment, right?
Yeah, we make the refinery is coming up in say 20-30 or 2031,
but you're out of business in 2035.
(43:31):
Are you going to invest? The answer is you, you're,
you're pulling the plug. And so we need to, we need to
understand that schedule and provide, provide the refiners
with an incentive to stay in state at the same time give
great recognition to the ambition of the clean air in,
in, in, in, in some of the otherinitiatives that the state has
(43:55):
on its political agenda. The question for the California
taxpayer is following, have we reached the point of diminishing
returns? That is, if I increase the price
of gas by another $0.30 a gallon, is it really going to
improve the quality of air? Now I understand the whole issue
towards EVs, but one of the problems we have in California
(44:18):
is according to the Legislative Analyst Office, we pay 38% more
in, in utility rates than any other state anyway.
So, so you know, you, you're forcing people into EVs at, at a
higher cost or you keep them in internal combustion engines so
that, you know, it's, it's a, it's a really self graded
(44:39):
dilemma in my opinion. Not to mention that the $0.60 a
gallon produces about, oh, $10 billion a year in revenue for
the state. So as you're bringing gasoline
consumption down, that revenue comes down.
Well, now the states, it's not anew idea, you know, they knew
they had to do it 10 years ago, is to put in a mileage tax.
(45:03):
So you know, you'll get a tax onhow many miles you drive.
And, and you should probably take that one step further.
That should be the mileage tax times the weight of your
vehicle, because the weight of your vehicle is what really
causes the damage to the road, right?
And so, and so if you own a 7000LB SUV or 7000 LB or 5000 LB EV,
(45:25):
you know, you know, you should pay a little bit more based on
the weight of that vehicle it out of equity.
So if you're seeking equity, I'mnot advocating it.
I'm advocating equity. So in in fact, if you're
thinking that way, it'll be mileage times the way.
Yeah, I've heard some people talk about that and it makes
sense. And I think it's a political
choice that a lot of jurisdictions are going to have
to deal with because the old model of tax the gas and that
(45:49):
funds the roads, yeah, no longerworks and won't will no longer
work in a world of EVs. Yeah, it's not going to work in
the world of EVs, but I saw an interesting statistic today that
EV sales are down 25% across thecountry.
Oh. Really.
I didn't see that. Yeah, I saw it this morning,
some Wall Street report. So sales are down to EVs about
25%. California's calculation was
(46:12):
off. I think carbon calculated about
35% market share of EVs by 2026.We're sitting at 25%, doubtful
that it'll go to 26% or 35% by next year.
Doubtful, right. So you know the the adoption
rate I think is slow to be these.
(46:33):
I do believe it's slow. And so unless you're forcing the
consumer into it by beating themwith their wallet, I, I think,
I, I don't think we're going to see a radical rush to EVs in the
near future. Yeah, well, I realize we're
we're I want to be respectful ofyour time, realize we're at
time. And I I really appreciate you
talking through what will be interesting years in California,
(46:58):
not only for gas, but also for electricity.
Our grid and our energy sources are going to be a topic of
conversation. It was a provocative projection.
I hope that you're wrong for thesake of myself and others who
pay gas and hope to see more projections as well so we can
see, you know, different models and how they approach it.
But you know, for yourself, you mentioned on the outset, you
know, you've been in California for a long time and it, you
know, gives you the way I like to end the conversations rather
(47:20):
is what I should say is what gives you hope for the future of
California? What are you hoping for going
forward? Well, I, I, I love California.
We're the smartest state. We have some of the best people.
We have some of the best technologies, some of the best
minds. Look, we'll figure it out.
(47:40):
Yeah, we'll figure it out. I mean, you know, maybe, maybe
the politicians should maybe siton the sideline and, and let the
experts figure it out. And, and, and the politicians
take the advice of the experts rather than following an
ideological framework or, or political dogma.
But, but I think, you know, in terms of do we have the people
(48:00):
and do we have the resources? Yeah.
We're the finest. We're the finest state in the,
in the union. We have the the greatest
concentration of talent and enlightened, an enlightened
electorate. And so maybe maybe the
politicians should maybe just sort of sit back and say, OK,
work on this and come back to uswith your best ideas in six
(48:22):
months and we'll listen and we'll listen.
So no, I, I have not lost hope for California.
It's it, it has been the Golden State and maybe a little bit of
luster has worn off in the last decade or so, but it's, it's, it
can be polished up quite nicely.And it can be the Golden State
that that, you know, that I think people dream about.
(48:44):
And some people, like me, had actually lived through some of
those times. Well, I fully agree with that
sentiment and I hope that we canPolish it up in the next coming
years. Professor Michelle, I really
appreciate your time and thank you for for speaking with me
today. Oh, it's been terrific anytime.
Loved it. This.
We will have lost 21% of our in state production capacity for
gasoline. The answer was, yeah, prices are
going to go up. We we are totally dependent on
basically maritime transportation of fuels into the
state, but we have no inbound pipelines.
The markets I think are looking really closely though saying,
all right, where's California going to source this stuff.
(00:22):
I love California. We're the smartest state.
We have some people, We have some of the best technologies,
some of the best minds. Hello, everyone, and welcome
back to the California Future Society podcast.
I'm your host, Jerrett Catlin, and this week I speak with
Professor Michael Mache from USC, all about the future of gas
prices in California. It's a hot topic, and it's fun.
(00:42):
That was made even hotter by Professor Mache in May when he
published 2 papers, one of whichprojected that due to the
closure of two major refineries in California, that's scheduled
to happen in the next two years,gas prices could climb as high
as 6 or $8 a gallon. Now, there's been a lot of
dispute over those numbers. Even the governor himself has
weighed in. We talk about the controversy
around the paper and a politicalresponse in our conversation,
(01:07):
and regardless of how you feel about those specific
projections, I think it's a really interesting conversation
because it comes at an interesting time in California's
trajectory. California has for a long time
been a national leader in oil production.
More recently, in the last 50 years, we have been a national
and international leader in reducing greenhouse gases and
trying to reduce carbon emissions, reduce smog, and
(01:28):
we've been incredibly successfuland we've set global standards.
The state legislature even recently passed a rule that no
new internal combustion engine cars could be bought starting in
2035. The state is fully pushing ahead
towards the goal of electrifyingthe state.
However, transitioning from where we are today to that
brighter, greener future is challenging.
(01:48):
It comes with a lot of policy trade-offs and questions and
uncertainties about how we navigate where we are today to
where we are hoping to go in thefuture.
And so I enjoyed being able to speak with Professor Mache about
the state of affairs in California, what is unique about
our gas markets, where we're going in the near future, and
what Californians should expect.So I enjoyed the conversation.
(02:10):
I hope you do as well as always subscribe wherever you're
listening to this or go to californiafuturesociety.com to
subscribe as well. And with that, here's Professor
Miche. Today I'm joined with Michael.
Miche, I'm really excited to talk to you today.
How are you doing? And start off all my
conversations. I'd like to ask what's your
connection to the state of California?
I'm doing great, thanks for having me.
(02:31):
Really excited to be here and I think I can claim myself to be a
native Californian. I was born overseas, so the
first place I entered the UnitedStates was Fort Mason, San
Francisco. So as a little baby, my mom
carried me off the ship and saw my first place in California was
(02:53):
San Francisco. So I do consider San Francisco
my sort of my home And, and, andof course, I've spent more than
half my life in the in the Golden State.
Beautiful. And where's your family
originally from? All over the place.
I lived in California, a little bit of Pennsylvania, New
England. I grew up predominantly in on
(03:17):
the East Coast and you can tell by my accent and and also was
educated on the East Coast. But the first time I had the
opportunity to come out to California was in the 80s, which
I thought were the greatest years of my life, living in San
Francisco and working for KPMG. And then also coming back in 97
(03:38):
to be on the faculty of the University of Southern
California, which is also one ofthe greatest periods of my life.
So blessed twice by the Golden State at least.
So give give you you mentioned your consulting background and
then also you've been on the faculty for is it 25 years or so
now at at Marshall School. Up there, yeah, 728, I don't
know. I got to do the math.
Yeah. Well, what type of topics have
(04:00):
you typically focused on and, you know, classes that you teach
and things like that. What what we'll talk about all
the energy stuff and gas prices that in a recent paper, but you
know, over your time, your career, what type of things are
you focused on? Well, I've, I've always taught
transformation innovation from the CEO perspective, not as the
innovator, but as the person whois leading your organization or
(04:21):
a country and how do they moderate all the innovation type
projects and investments that they do and they make it and
then management consultant. So those are the three classes
that I've taught consistently for all these years.
Wonderful. Well, the main topic I wanted to
dive in with you is a recent paper that you had put out that
(04:43):
caused quite a bit of a stir on gas prices.
Can you talk about that, the origins of it and we'll get into
the content so far, but just dida high level overview.
Sure. I mean, I followed this industry
since 1973. This is my academic interest.
Purely academic. I've done some work in the
industry off and on over the last goodness 50 years, but not
(05:07):
consistently. As an employee or consultant to
the industry's purely resident research related, I fell in love
with the economics of the industry in 1973 with the Arab
Israeli war and the oil embargo and, and how it hit the United
States and the the price increases that were associated
with that was a phenomenal period of time.
(05:28):
Anyway, I got really involved with that and just loved
studying it for the forever. It's, it's a true love affair.
The work on California was I wasalways interested in California.
The petroleum industry in the state is and was absolutely
instrumental to the state. Without the petroleum industry,
which began commercially here inthe 1860s, you really wouldn't
(05:53):
have the infrastructure built, the agriculture built, and a lot
of things that we have in California without the petroleum
industry. So I was always interested from
an economic standpoint, how did that industry impact our state
and in what, you know, what parts of it drove us to become,
you know, literally the 4th or 5th largest economy in the world
(06:14):
in the dominant state in the United States for economic
output. So really exciting for me to
look at it. And, and now you have tech and,
you know, we, we go through cycles and phases, but
underneath the wall is petroleum.
You know, we really can't make infrastructure without
patrolling. We, we can't make asphalt
without patrolling, we can't make concrete, we can't make
(06:35):
steel. So it becomes a really important
part of our infrastructure. And in something I just was
always excited in for this particular study we worked, I
began this study over 14 months ago.
So it's about 14 months of work beginning back in 2025, early
20, sorry, early 24 January, February period.
(06:59):
And it was a constant stream of research, research, research
data, data data that brought us up to the March 16th report
which concentrated on price gouging and included one the
closure of 1 refinery. And then subsequent to that
report, all of a sudden Valero decides to close down in
Northern California. So that precipitated us a
(07:23):
supplement to the first report and that one is dated May 5th
and they both received quite a bit of attention.
I wish some of my other work hadreceived so much attention, but
certainly it's received a lot ofattention and it's really
interesting how you know how people react to this.
In the first instance, we lookedat oil and gas industry
(07:48):
production consumption all the way to branded versus non
branded premium versus regular versus mid range fuels all the
way back to 01972. And we were looking at the
prices and how California pricesdifferentiated from that of the
rest of the country. And then you know, we sort of
saw a beginning of this wideningof differentiation.
(08:11):
And the question was why was that?
And that was very, very curious to us.
And then the second thing was all these allegations of price
gouging. And, and so we we looked at
refineries and we looked at refiner margins and we looked at
cost of crude, we looked at wholesale prices of, of gasoline
to the distributors from the refiners.
(08:32):
And, and we found no economic evidence of refiners engaging in
price gouging. I mean, there isn't any.
Yeah, you can, you can scream about it all you want and make
up all the things you want to make up, but there simply is no
compelling economic evidence forthat.
And, and it's not really just mystudy that that brought that
out. The California State attorney
(08:54):
general has studied this 8 or 9 * 7 eight or nine times going
back to at least 2000 and hasn'tfound price gouging on the part
of the refiners. The Federal Reserve System
studied it out of the Dallas bank, I believe, and hasn't
found price gouging on the part of the refiners.
The FTE looked into, FTC looked into it, along with I think one
(09:16):
of the courts in San Diego, and unilaterally, no, none of us has
found price gouging was attributed to the refiners.
Now, there was an instance of price gouging attributed to
traders. That's an entirely different
issue in, in, in beyond the scope of the work we did.
But we found no price gouging onthe part of the refiners, which,
you know, is contradictory to the popular political narrative
(09:39):
that the price that the big oil's gouging the heck out of
people. Well, it doesn't exist.
It's not there. That proof is not there.
Well, it's a, it makes sense. It's a hot topic.
I know. I mean, for my entire life, you
know, as a Southern Californian,I mean, energy and particularly
gas prices are, are, are a huge issue for people, particularly
as the, the state becomes less and less affordable and people
(10:01):
are, you know, just trying to get by.
And, and the, the narrative of people, you know, getting killed
at the pump, you know, KTLA or other local news sources that
you watch the gas prices, any spike in gas prices gets a lot
of attention, particularly as a lot of people rely on on gas
powered cars to get around. So it makes sense that it's a
hot topic, one that you'd want to look into.
And before we dive into some of the specifics of the paper, I'm
(10:24):
curious if you could just lay out like a one O 1 of why is
California's gas price is different to begin with.
If someone doesn't know the dip,the basics of the petroleum
market, how it's structured, andsome of the regulatory regime
that we have in California, why in the 1st place is California
gas more expensive than most of the rest of the country?
Yeah, happy to go over that. One is we have a special blend.
(10:46):
So the the formulation of gasoline that we burn in our
cars in California is different than you would buy in Nevada,
Arizona, Texas, Pennsylvania, any other place.
So it's a very unique blend that's specific only to
California. So that that's one attributing
attribute. Secondly, we have no pipelines
(11:09):
coming into the state. So we, we are totally dependent
on basically maritime transportation of fuels into the
state. So we have no inbound pipelines.
Third, we've had a 68% reductionin refineries over the last 30
years where at one time we had over 30-40 refineries, I think
43. We're now down or will be down
(11:32):
to 7 in April making California gasoline.
So the refiners have consolidated and they've also
exited the state and in that in itself is an issue.
Then we have all the taxes and fees that are levied on it.
So California has the highest excise tax in the country.
We have cap and trade which is extraordinarily high.
(11:54):
We have a new low carbon fuel standard coming into play, which
will increase the price of gas and we have the underground
storage tank fee along with a new cost related to inventories
for gas. So, so simple matter is supplies
is coming down, the demand has remained relatively the same,
(12:16):
but the regulatory costs have actually gone through the roof.
And when you say the special blend, that's due to desire to
reduce emissions, correct? That's kind of a special blend
that yeah. Can you explain that a little
more? Yeah, that's correct.
So as far back to the 1940s, we saw fault and smog in Los
Angeles. At least there's historical
reports for that. As old as I am, I wasn't around
(12:37):
for that. Even even me, as young as I am,
I had some smog days growing up in elementary school.
Not as much as my mom reports out in the Inland Empire, but
yeah, I had a couple growing up.Yeah, there's no question we've
had an air quality problem for, you know, almost 80 years now.
But in the 60s we attacked that.We being the state, the
legislature attacked that under Governor Reagan and and so the
(12:59):
California Resource Board was essentially formed which began
to systemically address tailpipeemissions and the quality of
air. And without question their work
has been fantastic. I mean, they have brought down
the emissions and improved the quality of air.
(13:20):
The question that we have now is, will more legislation which
adds more cost really improve the air by that much?
So it's kind of a point of dimension returns if one could
argue for that. But no, there was no question we
needed some significant intervention that occurred I
think in 6667 and and and then California began implementing
(13:45):
standards for fuel and standardsfor tailpipe emissions.
Yeah, it it seems like a core part of the California identity,
politically at least, is leadingthe nation in, in environmental
laws and rules for better and for worse, you know, and, and
setting those, those standards, it often times can go national.
And it seems like, Now tell me this is an unfair description.
It seems like the ambition is still there.
(14:05):
The desire to be the national leader is there.
But when it comes to particular refineries, we're in a really
precarious or awkward transitionpoint where the state has set an
explicit goal of, you know, electrification and banning the
sale of new internal combustion engine vehicles by the 2035 I
believe. So we're on this path towards
(14:27):
electrification and reducing fuel usage in the spirit of
California leading the nation. But that glide path of what it
looks like between here we are today, where we are today and
and where we're going in the future seems like it could be
potentially rocky. Is that a fair description?
I think, I think it's a very, very fair description and, and
it will be rocky, you know, a couple of things.
The 2035 band goes back to some legislations that were
(14:51):
established almost 25 years ago.And then the, the, the goals, if
you will, the targets for the quality and the emissions have
been reset periodically. So we're at A, at a point where
I think Governor Newsom had had his executive order on the ban
of internal combustion in new cars, the sale of new cars by
(15:12):
2035. Now from a, from a refiner's
perspective, not to mention the gas station owners, the 10,000
people, 10,000 gas stations in the state that employ 174,000
people, that's taking away the market.
I mean, you're basically legislating the market away.
(15:32):
And so if you're a refiner, a gas station owner, operator,
you're sitting around saying, well, what am I going to do with
these assets? Because literally the market is
going to be legislative away from me.
And and so where am I going to sell my product, which is only
specific to California and I have no pipelines that even ship
them out of the state if I wanted to remain in business.
(15:54):
So it's quite a dilemma right now that's been created by that.
Now President Trump has stepped in and interceded and apparently
assigned these the, the bill rolling back the ban on 2035.
And I'm sure I'll go to litigation and things like that,
but that's a, that's a huge hurdle.
And then you have a whole litanyof regulatory issues associated
(16:17):
with refinery and oil and production in the state.
We have adequate reserves of ourown oil here in the state.
I mean, we are an oil rich state, but we, but we import 63%
of our oil from foreign sources including Iraq and Saudi Arabia,
Ecuador, Guyana and Brazil in particular.
(16:37):
So we're highly dependent on these foreign sources of oil
which also use massive oil tankers, maritime transit, which
contribute to greenhouse emissions by the way.
And, and so it's, it's quite a dilemma that California has kind
of inflicted upon itself. So we're in this dilemma like
(16:59):
you're saying at the outset, we have this the Phillips 66 six
refinery that's closing down andthere's also the Valero is it up
in Benicia, I believe, Yes, refinery that's going to be
closing as well. And then as part of the addendum
to your paper, you're saying youcame out with some projections
of what prices could potentiallyget to and those were kind of
the eye popping thing that caught a lot of attention.
And can you, can you walk us through those numbers and, and
(17:20):
how you got to that? Sure.
OK. From 2023 potentially 2026,
April 26 when Valero's scheduledto shut down, in effect they'll
be, they'll be shut down before that.
All right, that's, that's when the sign goes on the gate
closed, we will have lost 21% ofour in state production capacity
(17:43):
for gasoline. My predictions were about 9.6
million gallons a day of lost instate production.
The CEO. Out of how many roughly?
Just going to give the 20% context, losing 9,000,000 is out
of what's our total roughly I guess.
We consume, we consume about 33 million.
OK. OK.
Thank you. All right, so on average, but
(18:04):
remember consumption and production, you know, we try to
keep them in balance, but they are different.
OK, So this is a significant hit.
I mean, you lose 21% of your production, you got to make up
for it someplace. But that was about 9.6 million.
Just a few weeks ago, the CEOPBFcame out marathon PBF and said,
(18:26):
Gee, we think it's more like 10.5 million gallons of gas a
day. And, and so the question, the
question then becomes Californians, we're not going
to, we're not going to stop driving and reduce our
consumption by 10 million gallons of gas a day, not in,
not between now and April, not unless catastrophic event
occurs. So the question then becomes,
(18:47):
well, well, how do you make up for that?
Where you going to find the gasoline and, and, and how much
is it going to cost? And, and, and so when we went
into our, our models and we built 25 different models for
this, we said, all right, where,where can we most likely source
this petroleum or just the gasoline products that would be
(19:10):
probably in Asia, which would beSouth Korea, Japan, Singapore,
China, even India, even as far away as Saudi Arabia that have
refineries that can make California compliant gas.
Now, when you're buying the gasoline from those refineries,
you know, it creates a lot of secondary issues.
For example, if you're buying itfrom China, their oil comes from
(19:33):
Iran and Russia and Venezuela, all sanctioned countries.
So you know, it's, it's a world economy, you know, for
petroleum, it always has been. And so issues are created,
secondary issues are created. So you have to transport that
across the ocean anywhere from 40 to 45 days on a major tanker.
(19:56):
Then you have to stay offshore for drayage and then you're
finally brought into port and you can unload.
So what we factored in was alternative sources for that
gasoline, the price of that, theprice of transporting those
alternative sources to the United States, because remember,
you're buying finished gasoline.So whoever makes it is going to
(20:19):
have their profit built into it.They're going to sell it to a
distributor here in California who has to add a profit on.
So as the CEO said from PBF, it's going to come at a higher
cost. So the same gallon of gas made
in California versus the same gallon of gas imported, chances
are the imported cost is going to be higher than the in state
(20:40):
cost. And so we, we factored that in
then we factored in the automatic increase in the state
excise tax. The state excise tax goes up
every July 1st. So it changes every July 1st,
but it's not based on Californiagasoline prices.
That's the interesting aspect ofit.
(21:02):
The excise tax in our state is based on the California Consumer
Price Index, the CPI. So if the CPI is up 3%, you can
expect a 3% increase in the excise tax.
So it's going to move from 59.6 cents to probably 6262.3 cents
(21:24):
on July 1st, somewhere in that range.
Then you have the new legislation for inventory of
gasoline storage. Legislation was passed requiring
the refiners to store X amount of gallons of gas or X day
supply. Well, think about it.
If you're burning 30 million gallons of gas a day and you're
asking them to to keep 10 days supply of finished goods
(21:48):
gasoline, that's 300 million gallons.
Where are they going to put it? They don't have excess capacity
for that. So somewhere they have to find
it or build it, but who's going to build it because you're out
of business in 2035. So, but we factored that in and
then we factored in the new low,the new low carbon fuel
standard, which CARB had originally come out to be $0.47.
(22:14):
They retracted it ostensibly because of public blowback.
University of Pennsylvania has it from 80 to $1.38 a gallon.
We had it from 57 to 63 a gallon.
And then you have cap and trade,which is a big one, $0.50 on
(22:35):
above per gallon. And then the federal excise tax
of $0.18. State and local, I'm sorry,
local and county taxes about 3.07% and and then the federal
excise tax of 18% in undergroundstorage.
Add it all up you you're going into the year with $1.80 in
(22:57):
taxes and fees associated with every gallon of gas produced in
California or sold in California.
And how much of that is new? Like how does that compare to
the current? Yeah, that's net new, $1.80 net
new or. It's debt Debt.
Dollar 80's today. OK, that's today.
Got it. OK.
That's what we're currently paying when we go to the pump.
(23:18):
Yeah. Yes, and that's, that's federal
and state and all, all taxes andfees included about $1.80.
Most of that is all California dollar 64 of California.
So they're they're not changing in, in, in, You know, one of the
controversial points of the paper is very simple.
If the price of oil went to zero, I mean went to zero, we
(23:40):
would still have the highest cost of gasoline in the country
because we have the highest taxes and regulatory costs in
the country. And, and so I, I, I can
understand where, where some of the, the, the, the politicians
react negatively to that, but that's the reality.
That is the math. Yeah.
(24:01):
Well and tell me more about there's eye popping figures on
like the potential per gallon cost by I think it was 2026 when
some if, if we were to experience both refineries
closing at 20% reduction in capacity.
How did you get to some of thosenumbers?
Well, we, we, we built it up through the replacement cost of
gasoline transfer rates, transportation rates to switch
(24:24):
over to the new California low carbon fuel standard.
And then something called the elasticity effect, which is if
the price, if the the supply goes down, but demand remains
relatively constant, what will happen to the price.
And, and so we looked at, we calculated that number and then
we also looked at various crude oil prices.
(24:48):
So what would the refiners, the surviving refiners in the state
might buy their crude oil at? We looked at three or four or
five different ranges of crude oil prices.
I mean, and, and so that's what we came up with this rather
large range of six O 4 to 843 depending on, you know, a lot of
variables that might happen in the world.
But but there you go. It's it's at that level.
(25:10):
And that elasticity piece, forgive me for getting a little
wonky here are are nerdy, but I noticed in the paper it, it
seemed like you were keeping demand relatively constant.
But if we were to experience a, a spike into the $6 range, you
know, I assume that there would be some elasticity of demand,
meaning that, you know, some people have to drive regardless,
but there would be others who reduce their usage, reduce their
(25:31):
consumption given in response tothose prices.
I've seen some papers put it at like, you know, .6% or something
like that, yeah. Yeah.
I, I mean, we, we looked at 1% reduction in consumption up to
3% reduction in consumption, OK.And, and then we also increased
the surviving refineries in the state, the only 7 left by by
(25:54):
three, five and 10% production increases in all scenarios, even
if it comes down and production goes up, we're short gasoline.
OK, just a mathematical, so I mean, it's just simple stuff.
It's short. The question is where do you get
it? OK.
And, and, and typically when we,when we've gone short, we've
(26:15):
gone to Washington state. They've been pretty good at, I
mean, they, they can produce California gasoline and, and
they constantly export California gasoline to us.
However, they don't have the capacity to cover what we need
as a result of the shortfall of in state production.
And and what I mean by that is about 53% of Washington state
(26:38):
refinery production goes to Washington state.
They they consume it themselves.About 40% gets exported to
Oregon. Oregon is almost entirely
dependent on Washington State for its gasoline and we get
somewhere between 5 and 7%. So, you know, we can't go to
(27:01):
Washington state and say, oh, weneed 4 or 5,000,000 gallons of
gasoline a day from you because they simply don't have the
capacity without either droppingtheir own in state production
quotas or their out of state allocation to Oregon.
So that's that. That becomes a problem.
So we have to go most likely to Asia, which creates a whole
(27:25):
litany of other problems relatedto greenhouse gases because
apparently, as the CARB chair admitted in testimony last week,
they don't look at the entire effect of greenhouse gases.
So if it's produced in Saudi Arabia or, or in China, you
(27:46):
know, comes over here mythicallyon a boat that doesn't produce
any greenhouse gases. But we all know that that's a
fantasy. There are greenhouse gases
produced. So, so the issue is, is the net
effect of procuring this gasoline 6000 miles away and
incurring greenhouse gas emissions all the way along is
(28:07):
that is that more desirable thanproducing in the state of
California? And, and that yet that has yet
to be resolved. Surprisingly, they don't study
and, and they admitted it. The second thing that was
admitted by the chair of Vice Chair Gunda of the CEC was when
asked directly, are prices goingup?
(28:29):
The answer was, yeah, prices aregoing to go up.
So, you know, will they go up asmuch as, you know, our models
indicate? I don't want them to go up that
much. I don't, I don't want to be
right, but they're going to go up.
It only stands to reason that given where we're at in
consumption, they're going to goup relative to demand that it's
(28:50):
just reasonable to make that that that logical leap.
I saw a betting market figure where that had a 70% odds of, of
prices going above $5 by the endof the year.
You know, it's, I didn't know the liquidity on that specific
or how many people are actually trading on it.
But you know, newfound features,technologies you can use to bet
on these types of things that are publicly available are
always fun to check out. How, how do those comparisons of
(29:13):
actual prices at the pump compare?
But anyone else tried to model out, hey, if we if we experience
these two refinery closures, youknow, we can estimate it to be
roughly a different number? As far as I know, I was the
first to try to model it out. I know, I know the CEC has been
asking for some of the equationsand some help in in their model
(29:35):
of it that should have to be resolved whether or not we'll
provide those equations to them.But as far as I know, I was the
first to put that out. And again, it's not whether it's
right or wrong, you know, I don't want to be right.
I don't want to see $8.50 gallon, you know, gasoline, it
that hurts a lot of people. It's it's disproportionately
harsh on lower income working class families and fixed income
(29:58):
folks. So, you know, I don't want to
see that. The point is, you know, we're
losing 21% of in state production.
The question is how you going toreplace it and how much is it
going to cost? You know it's going to cost
more. Yeah.
And if you keep adding regulations, you're only adding
to the cost burden. Yeah, yeah.
Well, I mean, I know those numbers, 850 figure caught a lot
(30:20):
of made a lot of headlines and got some even reactions from the
governor himself. Tell me more about the political
reactions and then tell me about, I'm curious too about
sharing the models with CEC because I know that one of the
critiques was that, you know, the paper didn't include the
models and so it was hard to kind of verify some of the
numbers. How I'm curious both the
political side of it and then also on the models, how that
how's that been? How's your life been the last
month? You know, it's been fine.
I mean, you know, you took a lotof criticism from the governor,
(30:43):
which I was quite disappointed in the governor.
You know, I mean, if you had anyproblems or you had any
questions, you could have calledup.
I mean, you literally could havesaid, hey, Michelle, you know,
what are you doing here? I don't understand these
numbers. They don't make a lot of sense
to me. I, you know, I disagree with
you, but hey, can you come up toSacramento and walk me through
it? I mean, if, if he had done that,
I, I would have literally walkedto Sacramento, flown to
(31:05):
Sacramento, done everything I could to support those
questions. And whether he agreed or
disagreed at the end of that, atleast he would have had the
benefit of sitting down and understanding the logic that
went into the paper. The second part of that is the
data was all their data. I mean, most of the data came
out of the CC or the US Energy Information Agency.
(31:27):
So there's no clandestine data here.
It, it came directly from, from public sources in the paper we
provide, where I provide more appropriately, a number of
exhibits that show a progressionof costs.
Those exhibits are itemized as to what the components are.
That's a good starting point forthem.
(31:51):
But I'm not, you know, I'm not compelled under any academic
standards or or even professional to, to disclose the
algorithms. The algorithms themselves are,
are somewhat proprietary. I, I had intended to, to go, to
go up to Sacramento and work with the CC.
They had, they had asked me to work with them and, and, and so
(32:12):
we sort of had this tentative agreement in place to do that.
But then Governor Newsom came out with all these allegations
about being on the payroll of Saudi Arabia.
Yeah, tell me about that. Yeah.
Now we'll get to that and and you know, the paper doesn't have
this. The paper doesn't have that.
And and then he had a couple of apparently so-called journalists
(32:34):
make a, you know, write a few less than desirable pieces on
me. But I mean, you know, had he not
done that, I would have been in Sacramento today working with
him. But unfortunately it went the
political route. And I'm not a political figure,
so I'm not quite sure really what precipitated this.
I mean, in my opinion, he had a temper tantrum and it was quite
(32:58):
childish and very unstatesment like.
And I'm thinking, my goodness, you know, if he reacts this
badly to a professor writing a paper, what's he going to do if
he's elected president and he's confronted with a real problem?
So, you know, it got me thinkingalong those lines.
But but I was disappointed in his, in his behavior and his
(33:21):
reaction. And I think, and I think any
academic should be, should be scared to death of that
reaction. And yeah, should be absolutely
scared to death of that reaction.
Has there been any market reaction, you know, given I
assume that you know something 6to $8 a gallon would would
change consumer behavior in certain ways.
Has there been any like market projections or pricing that in
(33:43):
or any other reflections of thatand you know, futures markets or
things like that? No, I haven't followed that, but
I can tell you what people because, you know, I part of
this is I've, you know, been on podcast and I've been on news
and things like that. And, and you know, so
occasionally somebody will recognize me and go, oh, aren't
you the, the gasoline professor?Yeah, yeah, I'm the guy.
(34:04):
Oh man, I hope you're not right.You know, we, we, you know,
what's really going on? Are we really losing these
refineries? How did that happen?
You know, how could that happen that we lose these refineries?
And I'm like, well, you know, here are a few of the reasons.
So I think in, in, in, in, in some regard, it's it's certainly
high heightened consumer awareness.
(34:24):
The markets, I think, are looking really closely though,
saying, all right, where's California going to source this
stuff? Because if you source it from
China, you're buying gasoline that's made with Iranian oil.
You're buying gasoline that's made with Russian oil.
You're buying gasoline that's made with Venezuelan oil.
OK. Those are contradictory to the
(34:45):
policy of the United States at this point.
Yeah, if you go to India, you'rebuying it predominantly with
Russian oil. If you go to if you go to Japan
and South Korea, that's going tobe Saudi oil.
What? Saudi oil is fine, but because
Saudi Arabia was the first or second largest source of oil
imports from California for years, for years we've been
(35:07):
importing oil from Saudi Arabia.So there are these secondary
concerns related to human rights, national security, which
type of government do you want to support?
Things like that. When you when you start, when
you start going overseas and looking for gasoline, not not to
mention their their refining standards aren't anywhere near
(35:29):
ours. So, you know, we have some of
the finest refineries in the world sitting here in
California. Yeah.
We're ranked on what's called a Nelson score.
And and we know we have tight, tight control over greenhouse,
greenhouse emissions. You're not going to find that in
China. Yeah, it's not even close.
Or India. Yeah.
(35:49):
It's an interesting time for thestate because like you're saying
at the outset, this is a oil production and refineries have
been a key part of the Californian identity,
particularly in Southern California.
It's not something that people today think about.
But, you know, the first big boom in Southern California was
oil production. There's still a lot in Kern
County. You can still see the occasional
Derrick down in Signal Hill in aLong Beach area.
(36:10):
And certainly if you look at historical photos, there's a lot
of that. So, you know, thinking about the
pathway forward of a state that's, you know, transitioning
away from it and what that lookslike for the refiners will be a
remarkable time. Yeah, Think about California in
terms of some of the the Seminole names, Doheny, you
know, Stanford, Crocker, you know, the list goes on.
(36:34):
And these were all fortunes thatwere that were built either
directly or tangentially by oil,OK.
And, and, and so the the fortunes of California as we
drive down the street and we seesome of the names on the streets
are built. Those are all related to the
California oil boom of of about 100 years.
(36:57):
And and don't forget the California oil supplied the
United States fleet during WorldWar 2.
I mean, without the oil fields here, it would have been very
difficult for those fleets to have all the diesel fuel and
aviation fuel that they needed. So California has played a
prominent role in in national security in many, many ways, in
(37:17):
particular the petroleum industry.
Yeah, You know, I mean, people will say, are you a petroleum
advocate? And the answer is no, I'm an
advocate of good policy. Yeah.
I, I have no vested interest in in any petroleum company.
Unlike CalPERS, the state's largest pension fund, I don't
own a billion dollars a stock inin Exxon Mobil or some of the
(37:41):
other petroleum companies. You know, with respect to Saudi
Arabia, the, you know, it, it was almost hilarious accusation
because the work that was done in Saudi Arabia was years ago
and it was all related to Vision2030.
And if you know anything about Saudi Vision 20-30, the work
(38:02):
that I did was all related to the diversification of the Saudi
economy away from petroleum. It had nothing to do with
petroleum. It was the antithesis of
petroleum. And, and in the, in the outcome
of that was the big idea, if youwill, was to create a, an
innovation superhighway, which would allow Saudi investment to
(38:24):
come to the United States very quickly to invest in industries
and concepts and technologies that could be brought back to
Saudi Arabia to diversify its economy and increase its
employment base outside of oil. And, and so the work was, I
mean, completely related to that.
It's been proven that it's been worried today.
(38:47):
I, I will say it can't release the the details, but an
investigation was performed and the investigation came up
exonerating any of those accusations.
Got it. Yeah.
And you know, if you were arguing that closing refineries
would hurt California gas pricesdoesn't help the Saudis, even if
it even if they're so it doesn'tthe logic there doesn't make
(39:08):
sense, but it's. It's absurd.
Yeah. We're on the Saudi payroll and
be going. Yeah.
You know, closing refineries andgas you want, Right?
Yeah. And you'd probably have a bunch
of people like me rowing the boats over, right?
Yeah. To reduce greenhouse emissions.
I mean, it's an absurd claim andit was just thrown out there to,
to, to distract from the, the quality of the research, the
(39:29):
quality of the work. I, I will say that among the
industry experts, including WallStreet experts, the, the, the
reaction to the both research papers has been just some of the
best stuff we've ever seen. And so that was kind of nice to
get back while I was hearing from the governor that it was,
you know, not very good. Yeah, But yeah.
And tell me, you mentioned good policy.
(39:50):
You know, so California is on this path towards
decarbonization. The politics of that aren't
going to change. And that's pretty popular.
A lot of people feel like that's, you know, and big, big
oil for, you know, is not the most politically popular and
won't be, I think, in in the next 100 years in, in given the
legacy of carbon emissions. And So what does good policy
look like for California's leaders managing this transition
(40:12):
towards decarbonization? What would you like to see
coming out of Sacramento? Well, in the May 5th paper, we
gave them 10 action steps to follow and, and, and those
action steps were entirely, entirely designed or intended to
keep the refineries operating. And with, with the provision
though that you know, we want probably some type of the 2035
(40:36):
move back to maybe 2045 or 2055.I mean, we're, you know, there's
no doubt we will be out of petroleum, which is the whole
reason for Saudi Arabia recognized that in 2017 sixteen
with their 2030 vision statement.
They know that their economy will not survive solely on
petroleum in 100 years. And so, so I think we need a
(41:00):
more realistic phase out period.Second, we need a rollback of
some of these, some of these regulations, including the new
low carbon fuel standard. Nobody knows how much that's
going to really cost. We're all sorting, you know,
estimating the best we can, but we know it's going to increase
their price of fuel. Maybe maybe roll that back.
(41:22):
We have a lot of oil in state, maybe become a little less
dependent on Iraqi oil, Saudi oil, Brazilian oil, Guyana oil,
which is, you know, kind of in dispute as a Venezuelan oil, as
a Guyana oil. All right, and and maybe
increase some of our own in state production.
And I think that would be not a bad idea given the fact that it
(41:42):
would create a lot of jobs and and additional income,
additional revenues for the state on the provision on a
very, very, very specific provision.
What, what I'd like to see the legislature do is if, if indeed
they, they, they move in the direction of allowing in state
producers to produce more oil here.
(42:02):
I would like to see them allow that under the following
condition. Whatever you produce in
California stays in California and in, in that, by that I mean
it goes to a California refinery.
It's made into California gasoline and it's sold to
California gasoline dealers. Any, any violation of that, you,
(42:26):
you, you're in real trouble. And, and, and part of parcel of
that, and I was accused of trying to create loopholes and
all no, is give them an investment tax credit.
You have to give these refiners and producers a reason to stay
in the state. If you're saying you're done by
2035, they're not going to invest in anything.
(42:47):
And in one of the things that's sort of hard for some people to,
to, you know, really kind of understand is that a refinery is
a capital intensive asset. It requires millions of dollars
a year to to maintain and every four or five years you're
spending a couple of 100 millionto to really turn over the
(43:10):
technology and the refinery. So, so if you're sitting here as
a refiner and and let's say you're your next major 100
million dollar $500 million turnover investment, right?
Yeah, we make the refinery is coming up in say 20-30 or 2031,
but you're out of business in 2035.
(43:31):
Are you going to invest? The answer is you, you're,
you're pulling the plug. And so we need to, we need to
understand that schedule and provide, provide the refiners
with an incentive to stay in state at the same time give
great recognition to the ambition of the clean air in,
in, in, in, in some of the otherinitiatives that the state has
(43:55):
on its political agenda. The question for the California
taxpayer is following, have we reached the point of diminishing
returns? That is, if I increase the price
of gas by another $0.30 a gallon, is it really going to
improve the quality of air? Now I understand the whole issue
towards EVs, but one of the problems we have in California
(44:18):
is according to the Legislative Analyst Office, we pay 38% more
in, in utility rates than any other state anyway.
So, so you know, you, you're forcing people into EVs at, at a
higher cost or you keep them in internal combustion engines so
that, you know, it's, it's a, it's a really self graded
(44:39):
dilemma in my opinion. Not to mention that the $0.60 a
gallon produces about, oh, $10 billion a year in revenue for
the state. So as you're bringing gasoline
consumption down, that revenue comes down.
Well, now the states, it's not anew idea, you know, they knew
they had to do it 10 years ago, is to put in a mileage tax.
(45:03):
So you know, you'll get a tax onhow many miles you drive.
And, and you should probably take that one step further.
That should be the mileage tax times the weight of your
vehicle, because the weight of your vehicle is what really
causes the damage to the road, right?
And so, and so if you own a 7000LB SUV or 7000 LB or 5000 LB EV,
(45:25):
you know, you know, you should pay a little bit more based on
the weight of that vehicle it out of equity.
So if you're seeking equity, I'mnot advocating it.
I'm advocating equity. So in in fact, if you're
thinking that way, it'll be mileage times the way.
Yeah, I've heard some people talk about that and it makes
sense. And I think it's a political
choice that a lot of jurisdictions are going to have
to deal with because the old model of tax the gas and that
(45:49):
funds the roads, yeah, no longerworks and won't will no longer
work in a world of EVs. Yeah, it's not going to work in
the world of EVs, but I saw an interesting statistic today that
EV sales are down 25% across thecountry.
Oh. Really.
I didn't see that. Yeah, I saw it this morning,
some Wall Street report. So sales are down to EVs about
25%. California's calculation was
(46:12):
off. I think carbon calculated about
35% market share of EVs by 2026.We're sitting at 25%, doubtful
that it'll go to 26% or 35% by next year.
Doubtful, right. So you know the the adoption
rate I think is slow to be these.
(46:33):
I do believe it's slow. And so unless you're forcing the
consumer into it by beating themwith their wallet, I, I think,
I, I don't think we're going to see a radical rush to EVs in the
near future. Yeah, well, I realize we're
we're I want to be respectful ofyour time, realize we're at
time. And I I really appreciate you
talking through what will be interesting years in California,
(46:58):
not only for gas, but also for electricity.
Our grid and our energy sources are going to be a topic of
conversation. It was a provocative projection.
I hope that you're wrong for thesake of myself and others who
pay gas and hope to see more projections as well so we can
see, you know, different models and how they approach it.
But you know, for yourself, you mentioned on the outset, you
know, you've been in California for a long time and it, you
know, gives you the way I like to end the conversations rather
(47:20):
is what I should say is what gives you hope for the future of
California? What are you hoping for going
forward? Well, I, I, I love California.
We're the smartest state. We have some of the best people.
We have some of the best technologies, some of the best
minds. Look, we'll figure it out.
(47:40):
Yeah, we'll figure it out. I mean, you know, maybe, maybe
the politicians should maybe siton the sideline and, and let the
experts figure it out. And, and, and the politicians
take the advice of the experts rather than following an
ideological framework or, or political dogma.
But, but I think, you know, in terms of do we have the people
(48:00):
and do we have the resources? Yeah.
We're the finest. We're the finest state in the,
in the union. We have the the greatest
concentration of talent and enlightened, an enlightened
electorate. And so maybe maybe the
politicians should maybe just sort of sit back and say, OK,
work on this and come back to uswith your best ideas in six
(48:22):
months and we'll listen and we'll listen.
So no, I, I have not lost hope for California.
It's it, it has been the Golden State and maybe a little bit of
luster has worn off in the last decade or so, but it's, it's, it
can be polished up quite nicely.And it can be the Golden State
that that, you know, that I think people dream about.
(48:44):
And some people, like me, had actually lived through some of
those times. Well, I fully agree with that
sentiment and I hope that we canPolish it up in the next coming
years. Professor Michelle, I really
appreciate your time and thank you for for speaking with me
today. Oh, it's been terrific anytime.
Loved it. This.
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