Part II: Don’t Let the Big Oil Money Confuse You on Prop 87 – The only way to get lower oil prices
October 27, 2006
In my opinion Prop 87 is good for California and good for the country. We have an energy crisis, a climate crisis, and a terrorism crisis all of them tied to oil. We need to do something and do it now. If you agree with the discussion below (and a series of subsequent and previous posts) please email a link to this blog to ten California voters and ask them to email to ten others.
As Tom Freidman put it in the New York Times: “Here’s the basic story: This Nov. 7, Californians will be asked to vote yes or no on Proposition 87, a ballot initiative that would impose a higher extraction fee on oil pumped in California. (Up to now, oil companies in California have paid a very low extraction fee compared with those in other states – a rip-off they want to keep.) The new funds raised by Prop 87, explained the San Francisco Chronicle, “would be used to finance research and development of alternative fuels in universities; education campaigns; and subsidies to consumers who buy vehicles that use alternative fuels and businesses that produce and distribute alternative fuels. … Oil companies would be taxed between 1.5 percent and 6 percent on oil production depending on the price of oil per barrel. The tax would end by 2017 or when the tax generates $4 billion, whichever occurs first.”
My last post talked about why gas prices won’t go up. Here I want to talk about how and why prices for gasoline will decline.
Given the current oil situation the ONLY way oil prices will go down is if we have alternatives to oil. In my opinion the alternatives exist today but the oil interests don’t want us to have them. Given the massive profits they make on oil they wouldn’t want a cheaper alternative in the marketplace. That is fair except if they use unfair means to perpetuate their stranglehold. It is also unfair if they use their political clout to wrangle billions of dollars of subsidies from American taxpayers. And they often make us pay for their R&D. “California drives have few alternatives to driving and oil companies are fully prepared to use this leverage to increase their profits to new record highs” says Jamie Court, Foundation for Taxpayer Rights and Consumer Rights.
The world use about 12 billion gallons of ethanol today. If that was removed form the market oil prices would spike up. If we produce more, oil prices will decline as supply increases. For the last thirty years R&D in energy has been declining. A hugely profitable company like Exxon spends 0.2% of its revenue on R&D and most of that is directed towards finding or extracting more oil. A few token projects to “sound green” are thrown in but almost no money goes into finding real alternatives to oil. Even the small technology oriented Silicon Valley company can spend 20% of its revenue on R&D. Isn’t it time we had a policy of more research and innovation in energy? Prop 87 directs significant funds to University-based research in energy alternatives. This is the only way we can and will get alternatives to oil and reduced oil prices and.
California recently passed Assembly Bill 32. It mandates that by 2020 we reduce our carbon emissions to 1990 levels. If we continue using fossil fuels and don’t find alternatives (both cleaner sources as well as efficiency improvements) we will end up with punitive taxes on all fossil fuels. Without alternatives we will be paying a lot more for gasoline. Prop 87 will create both more alternatives to oil and reduce its consumption by helping finance efficiency improvements. It will help finance alternative fuel vehicles like flex fuel cars and plug-in hybrids, reducing petroleum consumption.
A Saudi sheik is often quoted as having warned decades ago that the stone age did not end for the lack of stone. What is not reported is that he went on to say that “technology is our enemy”. Why? Because technology can create alternatives. And Prop 87 will help rush technologies and alternatives to market. Maybe, finally the consumer will have a choice – including a choice to not buy gasoline. To get real choices we need vehicles capable of alternative fuels. But we won’t get vehicles capable of alternative fuels until we have the fuels. And we wont have fuels till we have vehicles. Prop 87 will help solve this chicken and egg problem. And we will get choices. Already Richard Branson, who has committed a 100% of all profits from all his transportation businesses, estimated to be $3 billion over ten years to clean energy investments, has said he would invest a lot more of that money in California if Prop 87 passes. He has talked about opening Virgin Fuels, a renewable fuel brand. This extra investment will help increase competition and reduce prices for gasoline in a permanent way.
The oilies are scare mongering with their massive dollars. Many of them don’t want us to stop being hostage to oil. President Clinton has said ethanol is 33% cheaper. I know it is cheaper to produce, even with the subsidies oil currently manages to get.
In my next post, Part 3, I will discuss “extensive health and environmental costs of oil”. Later I will address the unfair oilie tactics, and the benefits to be had from freedom from their stranglehold.
As Tom Freidman says: “Passage of Prop 87 would be huge”. Vote Yes on 87!