Some are small but add up over time. Others are large, their negative effects almost immediate. In this last category belongs the idea that the state should take ownership of one or more oil refineries. It’s among a number of proposals offered by the California Energy Commission, which was tasked by the Legislature in 2023 through Senate Bill X1-2 to find a way to ensure “a reliable supply of affordable and safe transportation fuels in California.”
The Transportation Fuels Transition Plan was to be submitted the Energy Commission and California Air Resources Board by the end of last year. But nearly two months into 2025, nothing has been put forward. So it’s impossible to know what’s going to happen. But enough is known to cause apprehension. State ownership of oil production is a frightening prospect.
California is literally running out of oil refineries. Last fall, two days after Gov. Gavin Newsom signed Assembly Bill X2-1, which is intended to limit “higher profits for the industry,” Phillips 66 announced it was closing its Los Angeles refinery complex in 2025. It will be the fourth refinery shut down in the state since 2020. At that point, there will be only a dozen refineries left to produce the 38 million gallons of California’s boutique blend – which is not made anywhere else, costs more than conventional gasoline and requires oil companies to invest billions to upgrade their systems to make – that’s consumed daily.
Or maybe 14, if Valero, which has two refineries in the state, walks away due to, as reported by the Pipeline & Gas Journal “increasing regulatory pressure on refiners in the state.”
The state, then, must put a stop to this, because how can Californians get around if there are not enough refineries to manufacture the fuel that policymakers and activists want to erase from the state?
To understand just how rotten this idea is, think about where we already find state-owned oil refineries. As the Los Angeles Times helpfully mentions, Venezuela, Russia, China and Iran, all of them centralized authoritarian regimes, are four nations of more than a dozen that produce gasoline at state-owned refineries.
While it’s hard to choose the worst offender among them, take a quick look at Venezuela, which has the world’s largest proven oil reserves. Over the course of a few decades, it rose from being one of the poorest countries in Latin America to the richest country in that region. By the 1950s, it was the fourth richest in the world. From the late 1940s to 1970, no other nation exported more petroleum. It was the discovery of crude in 1913 that brought prosperity.
The country nationalized its oil industry in 1976, but operations were left to executives who had worked for the foreign petro companies and ran it like a business. Something happened, though, in 1998, the year Venezuela’s crude production reached an all-time high of 3.5 million barrels per day. Hugo Chavez was elected president. Once in office, he installed political cronies to manage the industry and turned “the once-proud” state-run Petróleos de Venezuela “into his private preserve.”
Consequently, an industry was wrecked and the economy driven to ruin. Domestic output has fallen while hyperinflation and shortages have shattered the quality of life.
This isn’t an argument that what happened to Venezuela will happen to California if the state takes ownership of the oil refineries within its boundaries. For one, California’s economy is far more diverse than Venezeula’s ever was. But Venezuela is nevertheless instructive by showing what happens when the state attempts to run a business or industry. It is simply not equipped to do so. Even the state’s own Energy Commission says, “There are complex industrial processes that the state has no experience in managing.”
The state, where central planners, never Milton Friedman, run the show, has no idea how to price goods and services. Rather than rely on market mechanisms, prices are set through political decisions and just plain guesswork, causing the inefficient allocation of resources.
Ignoring or overriding those market mechanisms also creates a barrier to new entrants – which lower prices and increase choice – into an industry.
Maybe that’s exactly what Sacramento wants, to take over and crush the petroleum sector. It fits neatly into California’s suicidal net-zero carbon emissions crusade.
Kerry Jackson in the William Clement Fellow in California Reform at the Pacific Research Institute.
