There’s a popular misconception that all cost increases are passed on to consumers. This is notion is incorrect. Economics is all about supply and demand. The price of any good is where supply and demand intersect. Notice, there is no cost of prodction on a supply and demand curve. The Y-axis is sale price and X-axis is number of units.
Prices increases only occur when the costs shift how much producers are willing to produce at a given price level. The commodities like oil, the global market sets the price for oil. California produces less than 1% of the worlds oil and it’s share declines every year. California oil producers can not raise prices above market price since the buyers of crude oil (refinaries) would buy oil from other producers. To increase oil prices, the drop in the California oil production would have to be so large as to raise the global price for oil. At less than 1% share of global oil production, it is quite unlikely that CA oil production can significantly effect global oil prices.
There likely will not be any drop off in California production. Oil fields take a long time (years) to come on line. They are only built if investors think will they will profitable at projected prices for oil. Since high crude prices are a recent development, existing oil fields in California were built at much lower expectation of the oil prices, like $35/barrel. The oil companies are making huge profits since the difference between what they expected $35/barrel and the market price, $60/barrel goes straight into their pockets. Paying a 4%-6% tax (it varies based on the price of oil) is not going to make projects that targeted $35/barrel unprofitable when the price of oil is 65%. CA oil producers will only lower production if production become unprofitable which 87 will not cause.
