California oil tax would fund energy spending

Bob Tippee
Editor

"Senseless" half describes a ballot initiative on which Californians will vote in November calling for a tax on oil to pay for state-sponsored energy.

The aim of the Clean Alternative Energy Act is to accumulate $4 billion for 10 years of spending on programs to replace oil.

The money would come from a tax on oil production, the rate of which would vary with the price of crude. At $10-25/bbl, the rate would be 1.5% of the gross value of oil. The top rate, 6%, would apply when the crude price exceeded $60/bbl.

Proponents of the initiative, known as Proposition 87, include former President Bill Clinton, former Vice-President Al Gore, movie stars, and wealthy Hollywood executive Stephen Bing, who is reported to have contributed $40 million to the glitz blitz.

Prop 87's supporters say the measure would cut oil use, improve the environment, and make oil companies pay for clean energy.

They betray their shallow understanding of the issues by including in Prop 87 a prohibition against pass-through of the oil tax to consumers. They don't say how a tax on raw material is supposed to not find its way to consumers of the finished product. But this is the land of fantasy and deception, after all.

In the real world, Prop 87 would cut oil production in California, raise imports, and squander proceeds of the production tax on a political beauty contest among uneconomic fuels. It would yield little in the way of useful energy; only markets can do that. By putting large amounts of money up for grabs outside the reach of market discipline and beyond the limits of popular understanding, it also would invite corruption.

Among US states, California ranks first in gasoline consumption and third in distillate use, mostly diesel. If a majority of Californians really want to stop using oil, nothing is stopping them.

To do so by way of a punishing tax on oil production would be beyond senseless, however. In view of the measure's effect on producers of something for which Californians display a consistently strong need, it also would be hypocritical.

This feature will appear next on Nov. 3.

(Online Oct. 20, 2006; author's e-mail: bobt@ogjonline.com)

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