California Proposes Jet Fuel Tax Credit, Raising Concerns Over Road Repair Funding

The governor's plan could divert hundreds of millions from highway and local street maintenance to subsidize sustainable aviation fuel.

Apr. 9, 2026 at 9:09pm

Got story updates? Submit your updates here. ›

A minimalist illustration using bold geometric shapes and primary colors to conceptually represent the complex economic and environmental tradeoffs in California's proposal to fund sustainable aviation fuel through a tax credit program.California's plan to subsidize sustainable jet fuel raises concerns over the cost and impact on road repair funding.Rodeo Today

California is considering a proposal that would provide tax credits to oil refiners producing sustainable aviation fuel, but critics warn the plan could drain hundreds of millions from road repair funds and fail to deliver significant emissions reductions at a reasonable cost.

Why it matters

The plan has drawn criticism from a range of stakeholders, including oil industry representatives, environmental groups, and the Legislature's nonpartisan analyst, who argue the credits could raise gas prices for drivers and undermine more effective climate solutions like electric vehicles and mass transit.

The details

The governor's proposal would grant tax credits to producers of sustainable aviation fuel, with the credits ranging from $1 to $2 per gallon depending on the fuel's emissions reductions. Only two companies currently qualify, including Phillips 66, which spent $1.25 billion converting its Rodeo refinery. The state estimates the credits could cost between $165 million and $300 million, but the legislative analyst warns the figure could be much higher if more companies claim the credits than expected.

  • In late 2025, Phillips 66 lobbied the governor's office directly for the proposed sustainable aviation fuel incentive package.
  • The governor included the tax credit proposal in his 2026 budget plan.

The players

Gavin Newsom

The governor of California who is advancing the plan to provide tax credits for sustainable aviation fuel production.

Phillips 66

A major oil refiner that spent $1.25 billion converting its Rodeo, California refinery to produce biofuels and has lobbied the governor's office for the proposed tax credit.

Helen Kerstein

An analyst with the California Legislative Analyst's Office who is urging lawmakers to reject the governor's proposal, warning it could significantly reduce diesel tax revenues used for road repairs.

Aaron Smith

A UC Berkeley economist who co-authored a report estimating the proposal could cause diesel tax receipts to fall by as much as 75%.

Anamarie Ávila Farías

A Democratic state Assemblymember who represents the district where the Rodeo refinery is located and is a supporter of the governor's proposal.

Got photos? Submit your photos here. ›

What they’re saying

“Every dollar that goes to this credit is one fewer dollar that goes to local streets and roads, and the state highway system. That's the trade-off.”

— Helen Kerstein, Analyst, California Legislative Analyst's Office

“If this incentive passes, it's my understanding this place stays here for years to come. That's what we're looking for.”

— Joe Jawad, President, United Steelworkers Local 326

“We definitely need road repairs, but we can't miss this chance on jet fuel. We must do both.”

— Anamarie Ávila Farías, State Assemblymember

What’s next

The governor's proposal is expected to receive a final legislative hearing on Thursday, where lawmakers will decide whether to approve the tax credit program.

The takeaway

This case highlights the difficult tradeoffs California faces in balancing investments in clean transportation, support for legacy industries, and funding for critical infrastructure like roads and highways. While the sustainable aviation fuel credit aims to reduce emissions, critics argue it comes at an exorbitant cost and could undermine more effective climate solutions.