As wildfires rage across Southern California and tens of thousands of people are evacuated (including our own staff members), oil and gas companies continue to wreck the climate while enjoying huge profits. This is the backdrop of a new report by The Climate Center, which reveals that a California tax policy called the “Water’s Edge Election” has allowed corporations to avoid paying an estimated $4 billion in state taxes. Closing this loophole for the oil and gas industry alone could restore $75 to $146 million per year in the state’s budget, according to the California Franchise Tax Board. Exxon, Chevron, and Shell were instrumental in shaping Water’s Edge legislation, which has been adopted by ten states and enshrined in California state law since 1986.
This tax loophole is no secret. A 2015 U.S. Senate special investigation found that Chevron — California’s largest corporate polluter — reported $31 billion in untaxed profits in 13 tax haven countries. Furthermore, a June 2024 analysis found that 76 Fortune 100 companies have at least one subsidiary in a foreign tax haven. Those companies include oil giants Chevron, Phillips 66, Marathon Petroleum, Valero Energy, ConocoPhillips, and Exxon.
Our new report comes as oil companies continue to rake in record-breaking profits. In 2023, Exxon, Chevron, and Shell made more than $83 billion in profits. The same year, California faced an estimated $32 billion budget shortfall, followed by a $46.8 billion budget deficit in 2024. As a result, billions were cut from state climate programs just when we need to invest more. Governor Newsom is expected to announce his full proposal for the 2025-26 state budget on January 10.
Closing the Water’s Edge loophole can potentially redirect over $100 million from polluters’ pockets to urgently-needed climate investments each year. A growing list of states including Minnesota, New Mexico, and Vermont are moving toward rejecting Water’s Edge. Oil-friendly Alaska already has a law prohibiting the oil industry from using the tax break. As home to some of the world’s largest oil corporations, California must eliminate this outrageous tax dodge.
Read our report to learn more about the Water’s Edge tax break and how policymakers can end it.
Please take action here to remind our state leaders that, more than ever, California must lead on climate!
This blog first appeared in The Climate Center’s bi-weekly newsletter. To keep up with the latest climate news and ways to take action for a climate-safe future, subscribe today!
