$6 Gas and Refinery Fears Collide with California’s Climate Ambitions

State Approves Controversial Overhaul Amid Gas Price Crisis

California air regulators this week approved a sweeping overhaul of the state's carbon market that could provide as much as $4 billion in free pollution permits to oil refineries and other major polluters, dramatically reducing revenue for climate programs that benefit Santa Barbara County residents.

The California Air Resources Board voted 10-3 on Friday to adopt the changes to its cap-and-invest program after two days of hearings, according to CalMatters. The move follows intensive lobbying by the oil industry and pressure from Gov. Gavin Newsom's administration as California faces soaring gas prices — currently over $6 per gallon — amid refinery closures.

The Santa Barbara Independent first reported that the oil and gas sector spent $10.3 million lobbying Sacramento in the first three months of 2026, with the Western States Petroleum Association and Chevron accounting for the bulk of it.

Climate Funding Cut in Half

The approval sets up a potential budget fight in Sacramento, as the Legislative Analyst's Office projects that quarterly auction revenue for state climate programs will drop from roughly $4 billion a year to about $2 billion under the new overhaul.

This revenue decline threatens funding for programs that directly benefit Santa Barbara County residents, including affordable housing near public transit, wildfire prevention projects, safe drinking water infrastructure, and air quality monitoring in pollution-affected communities. The program has historically funded the California Climate Credit, which provides twice-yearly rebates on utility bills — rebates that UC Santa Barbara analysis found could be reduced by as much as $1.7 billion under the proposal.

Assemblymembers Jacqui Irwin and Cottie Petrie-Norris, who chair climate and energy committees, said the proposal "reflects the Legislature's focus on affordability" and urged the board to proceed "without delay."

Local Impact of Statewide Gas Crisis

The changes come as California faces an unprecedented fuel supply crisis. Two refineries are closing: the Phillips 66 refinery in Los Angeles shut down in October 2025, and Valero's Benicia refinery is set to close in April 2026. Together, these facilities represent about 17% of California's refining capacity.

USC Professor Michael Mische's analysis warns that gas prices could surge 75% to $8.43 per gallon by the end of 2026. For Santa Barbara County residents, who already pay premium prices for fuel, this would represent a crushing burden on household budgets and the local economy that depends heavily on tourism and agricultural transportation.

Environmental Groups Raise Concerns

Critics say the air board's new Manufacturing Decarbonization Incentive program essentially undermines the carbon market's core function. The program would create 118.3 million free pollution permits — the same number regulators say must come off the market for California to meet its 2030 climate targets.

"We are really concerned that this would significantly kneecap the program," Chloe Ames of NextGen Policy told the Santa Barbara Independent. Environmental Defense Fund's Katelyn Roedner Sutter said the proposal "is based on proposed investment, not any guaranteed reduction."

Berkeley energy economist Meredith Fowlie, who chairs an independent committee overseeing the carbon market, found that refineries could receive more free permits than they need to cover their emissions. "One could use the word generous," Fowlie said.

What Comes Next

The amended program goes into effect September 1, pending any potential legal challenges. Air board officials defend the design, saying credits will only go to companies undertaking decarbonization projects and can be clawed back if misused.

For Santa Barbara County, the implications extend beyond fuel costs. Reduced climate funding could affect local transit projects, environmental justice programs, and renewable energy initiatives that help the region transition to cleaner alternatives while maintaining its environmental leadership on the Central Coast.