California’s reputation as a torchbearer for climate policies faces a critical juncture as Chevron’s refining division head, Andy Walz, issues a resounding cautionary note. In an interview with Bloomberg, Walz shared a startling prognosis: the Golden State is playing a “dangerous game” with its stringent regulations, poised to significantly hike the premium its drivers pay for gasoline compared to the national average.

A Troubling Trend

In the last quarter of the previous year, California drivers bore the weight of an average of $4.94 per gallon of gasoline, in stark contrast to the national average of $3.22. Walz pointed to the state’s stringent low-carbon fuel standards as a driving force behind this palpable disparity.

Painful Realization

According to Walz, the state government was cognizant of this consequence when enacting the legislation, stating, “It’s becoming painful. It’s a reality the consumer is starting to grapple with.”

Ripple Effects

Chevron’s concern is far from hypothetical. The behemoth recently marked down up to $4 billion of assets, citing California’s exacting regulations as a chief impetus. The most recent cause for consternation is a proposed establishment of a maximum refining margin in California. Chevron’s investment prospects at its two California refineries, which currently constitute approximately 30% of the state’s capacity, are perilously undermined, further compounded by the state’s plans to phase out internal combustion engines by 2035. Walz underscored that a law capping refinery profit would render growth projects infeasible.

Dilemma of Choice

Facing such constraints, Walz lamented, “If they cap the upside when conditions are good, it’s going to make it really challenging to want to put our money there. I’d rather spend money at our refinery in Mississippi.”

Industry Shift

In response to the state’s incentives, Chevron, Marathon Petroleum, and Phillips 66 have redirected focus towards renewable fuels, catalyzing an 11% reduction in California’s refining capacity over the past decade. Walz cautioned that the current trajectory is a perilous gamble that could unravel California’s gasoline supply if the government’s desired outcomes fail to materialize.

Uncharted Waters

Walz warned, “Refiners’ decisions place us on a path that could lead to a reliability crisis. The supply of gasoline may be imperiled if our trajectory veers away from the government’s vision. It’s a perilous game.”