Coalition calls on Gov. Newsom to end fossil fuel subsidies

Over 70 environmental and climate groups renew call for state leaders to cut fossil fuel subsidies and tax benefits in California

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On Tuesday, over 60 groups sent a letter calling on Governor Gavin Newsom and legislative leaders to end tax subsidies for the oil and gas industry and use those funds instead to advance climate priorities. The Governor’s January budget proposal, which will respond to a state budget deficit of up to $68 billion, could include cuts to clean transportation, clean energy and other investments meant to avoid the worst impacts of the climate crisis. Rather than cutting these important programs that protect California’s air, climate, and public health, the Governor should instead cut subsidies and tax expenditures for oil and gas, which work against these critical goals.

Ending subsidies for the oil and gas industry is consistent with the state’s climate goals and could provide an important alternate source of revenue to continue to ensure California leads the way on climate. We can help protect the funding needed to combat climate change and protect Californians by cutting subsidies for major polluters. Read the letter to Gov. Newsom below:

Tell Gov. Newsom: End fossil fuel subsidies

 

 

January 9, 2024

Dear Governor Newsom, Senator Atkins, and Assemblymember Rivas, 

We applaud your leadership and commitment to working with us and our colleagues to advance climate policies that position California as world-leading on climate action. In 2023, you held Big Oil accountable by enacting the first-of-its-kind price gouging penalty, and you launched a lawsuit against major players in the oil industry to hold them accountable for their deception and role in exacerbating climate change. However, the oil and gas industry continues to receive California tax benefits, even as the state is moving away from fossil fuels.

Given the projected $68 billion deficit for the upcoming fiscal year, the state must consider ending handouts to the oil industry, whose companies have profited enough off the backs of hard-working Californians. The state should not be subsidizing oil and gas, especially in light of the new agreement from the United Nations Climate Change Conference (COP28) to transition away from fossil fuels, coupled with California’s ambitious climate target to reach carbon neutrality by 2045. As you consider several funding shifts and cuts to California’s climate commitment given the budget deficit, we urge you to put people over profits and continue to hold the oil and gas industry accountable.

The Department of Finance annually reports on tax expenditures. We respectfully request that the Administration identify all current tax expenditures both specifically for the oil and gas industry and broader corporate tax expenditures that the oil and gas industry benefit from and utilize. We are requesting that you and the Legislature include language in the budget to remove these subsidies.

There are a number of broad tax credits that include many industries—including the oil and gas industry. Specifically, we suggest eliminating the following significant tax benefits enjoyed by the oil and gas industry using North American Industry Classification System (NAICS) codes for the following corporation tax expenditures:

  • Water’s Edge Election ($4.3 billion for all industries): Water’s Edge Election is a tax expenditure that allows multinational corporations to compute the income attributable to California on the basis of a water’s edge or domestic-only combined report, as opposed to a worldwide combined report. This allows a corporation to elect to compute its California tax by reference to only the income and factors of a limited number of entities. 
  • Research and Development Credit ($3.1 billion for all industries): Corporations are allowed a credit for research expenditures.

Allowing California’s large oil and gas corporations the choice of a Water’s Edge Election for purposes of being taxed sanctions offshore tax havens. In 2018, Dutch and International unions filed a complaint alleging that Chevron funneled billions through Dutch subsidiaries to tax haven countries. This suggests that Chevron benefits significantly from California’s Water’s Edge Election tax policy. Additionally, a 2015 U.S. Senate investigation found that Chevron had hidden $31 billion in profit within companies based in 13 different offshore tax havens.

Furthermore, data from the Legislative Analyst’s Office from 2001 shows that “chemical and allied products” was a top industry for receiving the Research and Development Credit, and that firms with over $1 billion in revenue got about 63% of the value of the credits despite being only 7% of the number of recipients. This would suggest that the oil and gas industry has been a big recipient.

We also suggest eliminating the following additional tax expenditures that currently benefit the oil and gas industry:

  • Accelerated Depreciation of Research and Experimental Costs ($90 million for all industries): Corporations are allowed the option to deduct research and experimental costs currently or amortized over a 60-month period.
  • Combined Corporate and Personal Income tax: Percentage of Depletion of Mineral and Other Natural Resources ($10 million) 
  • Combined Corporate and Personal Income tax: Intangible Drilling Cost Expensing ($8 million)

Finally, we suggest restricting the following tax expenditure from benefitting the oil and gas industry:

  • Sales tax: Exemption for Manufacturing and Research and Development Equipment ($495 million for all industries)

Several states including Montana, New Hampshire and Minnesota have attempted to implement worldwide combined reporting on the issue of offshore tax havens and how to address them at the federal and state level. California can be the largest state to do so.

California should end subsidies for the fossil fuel industry that continues to profit at the expense of Californians. Ongoing savings associated with excluding the oil and gas industry from utilizing these tax expenditures (after calculating the benefit to Proposition 98) should be utilized to fund climate programs that would otherwise be cut or delayed in the 2024-2025 Budget. The statutory changes can be contained within a trailer bill to evaluate and effectuate these changes. Attached please find draft language that would eliminate the oil and gas industry’s use of the Water’s Edge tax credit.

We look forward to working with you to ensure we can enact policy changes that safeguard our communities from the impacts of climate change. 

Sincerely,

Laura Deehan

Environment California

 

Liza Tucker

Consumer Watchdog

 

RL Miller

Climate Hawks Vote

 

Matt Nelson

Presente.org

 

Ilonka Zlatar

Oil and Gas Action Network

 

Luis Angel Martinez

Fossil Free California

 

Shoshana Wechsler

Sunflower Alliance

 

Valerie Ventre-Hutton

350 Bay Area Action

 

Elaine Maltz

SanDiego350

 

Susan Penner

1000 Grandmothers for Future Generations

 

Lisa Swanson

Climate Reality Project Orange County Chapter

 

Alan Weiner

350 Conejo / San Fernando Valley

 

Mark Accomando

Climate Reality Project, Riverside County Chapter

 

Ellie Cohen

The Climate Center

 

Pauline Seales

Santa Cruz Climate Action Network

 

Nathan Taft

Stand.earth

 

Dan Ress

Center on Race, Poverty & the Environment

 

Bill Allayaud

Environmental Working Group

 

Daniel Chandler

350 Humboldt

 

Janet Cox
Climate Action California

 

Susan Morgan

Indivisible Marin

 

Jennifer Tanner

Indivisible CA Green Team

 

Robert Gould, MD

San Francisco Bay Physicians for Social Responsibility

 

Collin Rees

Oil Change International

 

Lynda Marin

Citizens’ Climate Lobby

 

Allan Moskowitz

Transformative Wealth Management, LLC

 

Maro Kakoussian

Physicians for Social Responsibility – L.A.

 

Michael J. Painter

Californians for Western Wilderness

 

Iwalani Faulkner

Equity Transit

 

Katie McCammon

350 Sacramento

 

Dominic Frongillo

Elected Officials to Protect America

 

Barbara Sattler

California Nurses for Environmental Health and Justice

 

Jonathan Garza

CEJA

 

Sakereh Carter

Sierra Club CA

 

Gopal Shanker

Récolte Energy

 

Christine Boles

Beausoleil Architects

 

Collin Rees

Oil Change International

 

Andrea Leon-Grossmann

Vote Solar

 

Jonathan Parfrey

Climate Resolve

 

Haleemah Atobiloye

Breast Cancer Action

 

Jordan Wells

National Stewardship Action Council

 

Daniel Gluesenkamp

California Institute for Biodiversity

 

Cherie Shore

Civic Sundays L.A.

 

Sven Thesen

Project Green Home

 

Zachary Norris

Greenpeace

 

Jesus Alonso

Clean Water Action

 

Fatima Iqbal-Zubair

California Environmental Voters

 

Christine Lenches-Hinkel

301 Organics

 

Cheryl Weiden

350 Silicon Valley

 

Hazel Watson

Sacramento ACT

 

Pam Allio

Climate Reality Bay Area Chapter

 

Bahram Fazeli

Communities for a Better Environment

 

Bart Ziegler

Samuel Lawrence Foundation

 

Veronica Wilson

Labor Network for Sustainability

 

Cynthia Kaufman

Pacifica Climate Committee

 

Bill Magavern

Coalition for Clean Air

 

Alicia Nichols-Gonzalez

Mothers Out Front

Janet Cox

Climate Action California

 

Regina Banks

Lutheran Office of Public Policy-California

 

Jason Pfeifle

Center for Biological Diversity

 

Eileen Mitro

Climate Action Mendocino

 

Janelle London

Coltura

 

Kevin Hamilton

Central California Asthma Collaborative

 

Delia McGrath

Pacifica Peace People

 

Arnold Sowell, Jr.

NextGen California

 

Nicole Ghio

Friends of the Earth

 

Miho Ligare

Surfrider Foundation

 

Victoria Rome

NRDC

 

Rachel Kondor

Environmental Defense Center

 

Rohan Pandit

Silicon Valley Youth Climate Action

 

Antonina Markoff

Climate Reality Project California State Coalition

 

Chirag Bhakta

Food & Water Watch

 

Julia Dowell

San Francisco Baykeeper

 

Maryam Dallawar

Sunrise Movement Orange County

 

Amee Raval

Asian Pacific Environmental Network

 

Suzanne Hume

CleanEarth4Kids.org

 

cc: Senator Nancy Skinner, Senate Budget Committee, Chair

Incoming Senate President pro Tempore Mike McGuire

Assemblymember Jesse Gabriel, Assembly Budget Committee, Chair

Joe Stephenshaw, Department of Finance, Director

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Authors

Steven King

Clean Energy Advocate, Environment California

Steven leads Environment California’s campaigns to increase clean, renewable energy throughout the Golden State, spearheading efforts to transition away from dangerous fossil fuels and address climate change. Steven lives in Los Angeles where he enjoys spending time outdoors, watching his favorite L.A. sports teams, and playing the trombone.

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