10/12/2010 01:36 pm ET | Updated May 25, 2011

Texas Oil Price Gouging Behind Drive to Stop Greenhouse Gas Caps

When the eighth largest economy in the world establishes a landmark greenhouse gas emissions cap, you can bet oil companies are going to try to find a way to knock it down for one reason: money.

A new report shows the motivation behind one Texas oil giant's crusade against California's landmark greenhouse emissions law: big profits from price gouging of drivers.

The report by Consumer Watchdog's Oilwatchdog project shows Californians have endured higher gasoline prices than the rest of the nation while Texas-based Valero has averaged 37% higher margins on each barrel of oil it refined in California. The result -- $4.5 billion in profits.

That type of price gouging is apparently too profitable a gold rush to threaten with competition from a green-tech energy sector, which is why Valero is the principle funder behind California Proposition 23. The November ballot measure freezes the state's greenhouse gas cap until unemployment all but vanishes.

The irony is that green tech is the job creation engine of the state, making California tops for green collar jobs in the nation.

Environmentalists have been fighting Proposition 23 on the basis that dirty Texas oil companies want to keep polluting in the state. The bigger truth is that they want to keep price gouging the state's motorists, and Proposition 23 is a tool to allow the refiners to continue to charge too much for gasoline and make too much profit per gallon. It's all about dollars and cents per gallon.

According to Consumer Watchdog's report:

* Valero's net refining margins in California have been 37% higher per barrel than those from its refineries in other regions since 2002.
* Profits have been highest in California for the company during periods of steadily rising gasoline prices; Valero earned more than $1 billion in California refining profits in 2006 alone.
* Higher than average gasoline prices in the West, created by artificially low supplies during periods of high demand, have been Valero's recipe for big profits.

Valero's ability to exact outsized profits from California depends on high pump prices because, unlike integrated oil companies like Chevron, it doesn't extract crude oil, it only refines oil and sells its products at retail gas stations. This means that refining margins are central to its profits.

During the recession, Valero has been selling off refineries in the Northeast, but has held onto its California refineries with the expectation that it will resume getting outsized California profits by keeping refined gas supplies tight and charging high prices for gasoline in the state.

The ability to tighten gas supplies in California -- a key component of the price gouging -- will be limited by new environmental rules that support green alternatives to oil and less dependence on gasoline in California. Voters are not yet ready to scrap the greenhouse gas law, but Valero is making it's run at their hearts and minds -- arguing jobs will be lost if the environmental rules take effect.

Californians need to follow the money, all the way to Texas. That says everything about why Valero is backing Proposition 23.


Jamie Court is the author of The Progressive's Guide to Raising Hell and the President of Consumer Watchdog, a nonpartisan, nonprofit organization dedicated to providing an effective voice for taxpayers and consumers in an era when special interests dominate public discourse, government and politics. Visit us on Facebook and Twitter.