Capital & Main: Will California’s Fossil Fuel uIndstry Use the Ukraine War to Undermine Oil and Gas Legislation?
By Aaron Cantu
Three bills may fall victim to a new push for more oil drilling.
The shock to the global financial system from the Russia-Ukraine war isn’t only driving up the cost of gasoline in the U.S., but also raising the price of gas to heat homes, boosting inflation and potentially undermining climate change legislation in California as well as the state’s efforts to ramp down oil and gas production.
Although the U.S. is banning Russian energy imports, California doesn’t rely on Russia for oil or gas. Yet already the industry is aggressively pushing the Newsom administration to approve more than 1,000 permits for new production to help “reduce the need to increase imports from foreign sources, like Russia,” said the Western States Petroleum Association in a statement. Experts tell Capital & Main this won’t do anything to stop rising gas prices in the short term.
As legislation starts heading to committees in the California Assembly and Senate, three bills that seek to limit the oil and gas industry’s power in the state could feel the impact of this fast-changing political environment. One would divest billions in state pension funds from fossil fuel assets, while another would shut down three offshore oil platforms. A third would promote greater transparency in how companies that sell gasoline in California determine prices at the pump.
Senate Bill 1173
California oversees the largest public pension fund and the largest teachers’ retirement fund in the country. The fossil fuel investments for CalPERS and CalSTRS add up to more than $9 billion, including direct holdings and as part of larger funds, according to Fossil Free California, which is sponsoring a divestment bill introduced by Sen. Lena Gonzalez (D-Long Beach).
As of last year, both funds held millions of shares in companies like Chevron, ConocoPhillips, Marathon and Exxon. The bill would prohibit managers of the funds from new fossil fuel investments and require complete divestment by 2027.
“The state’s two largest employee pension funds use enormous investment power to finance companies driving climate change,” Gonzalez said during a press event in February. The State Building and Construction Trades Council of California, which commonly votes in step with the oil industry, later sent a letter to the Legislature opposing the bill.
Both CalPERS and CalSTRS hold millions of shares of Gazprom, Russia’s state-owned oil company, whose revenues accounted for more than a third of the government’s total budget in 2021. Last October those shares peaked at almost $11, but they have now plummeted to $1.10. In addition to Gazprom, CalPERS and CalSTRS are also invested in state oil ventures in Saudi Arabia, Canada, Hungary, China and across Europe.
In an emailed statement, CalSTRS didn’t say if it would release its holdings in Gazprom, but said it opposed the divestment bill. CalPERS had investments in Gazprom through stock market indices that have already dropped Russian securities, a representative said, and was in contact with Gonzalez’s office about the divestment bill.
Fossil Free California put out a report in the early months of the pandemic that found CalSTRS had lost more than $1 billion when oil prices tanked in the first half of 2020. Today the story is different: With stock prices surging, including record levels for Chevron, non-Russian oil companies could be attractive for short-term gains.
Supporters of the legislation don’t see it that way.
“To address climate change we need to phase out the use of fossil fuels, and this means in the long run fossil fuel company stocks are expected to have lower returns, and be a financial risk,” said Emily Kaufman, who works on the divestment campaign with Fossil Free California.