October 7, 2006

CALIFORNIA PROP 87: Bureaucracy vs. Private Enterprise

Chevron is about to get hit hard in the pocketbook - albeit a pocketbook full of recent windfall oil profits.

To its credit, Chevron has tried to get in front of the renewable energy movement. They claim that they spend $300 million/year in technology to support new energy sources and 15 months ago they created their "Will You Join Us?" campaign - a marketing tool to affect public perception about Chevron's guardianship of its customers' energy security. In the field of public relations they are head and shoulders above their competition (remember the Exxon Valdez).

What troubles Chevron is that they are the major oil producer in California and the state has The Clean Alternative Energy Initiative (Prop 87) up for a vote this November. This initiative will tax producers a total of $4 Billion on oil they extract within the state. These revenues will be administered by the reorganized California Alternative Energy and Advanced Transportation Financing Authority. The new funds will be used to finance research and production incentives for alternative energy, alternative energy vehicles, efficient technologies, education and training according to its very loosely worded percentage breakdown.

Chevron is spending an historic amount of money fighting California's Prop 87. But the voting "parisioners" in this citadel to automotive freedom are mad as hell and the initiative is likely to pass no matter what arguments Chevron presents. Sounds great to the public but I am not so sure.

Does California need another extra-governmental bureaucracy? I believe the challenge before Californians is not money - it's vision and implementation on a timely basis. A speedy and successful renewable energy paradigm shift will require the R&D and deployment of many new technologies addressing a host of challenges and opportunities. Too many, in fact, for a single bureaucracy to grasp, much less manage and fund with integrity. Is it realistic to expect this authority, which only managed expenditures of $203,000 last year, to judiciously administer over 20 times that amount in the each of the next ten years?

The primary ingredient for success of the paradigm shift will be profit motive - the blind spot of bureaucracies. We have a precedent for how paradigm shifts can take place in a short amount of time without an extortion tax (L.A. Times editorial) levied against any industry. We saw the breathtaking rise of Silicon Valley during the 70s-90s on a unifying vision of placing computers on every desk and in every household. The ROI was not only economic but this spectacular paradigm shift produced the fastest rise in productivity and communications in the history of man.

If Prop 87 passes, no real progress will come from the oil profit tax unless the new bureaucracy can persuade the state government to reform regulations and permitting of new technologies. As the BioEnergy Producers Association's president CA Senator David Roberti (ret.) can attest, passing energy, waste management, and the environmental reforms are much more challenging than what Silicon Valley entrepreneurs have ever had to face.

Progress will not come without making mistakes - lots of them - and California's environmental idealists are prone to shoot down unproven technologies before deployment. Legislators must lead and educate their constituents on the merits of emerging technology now that California's groundbreaking Global Warming Solutions Act has been signed.

If Sacramento can capture the vision and make the proper reforms necessary, we won't need the $4 Billion. Companies will flock again to California - our employment and tax coffers will rise on the investments. If Sacramento does not support the new bureaucracy in the face of environmental idealists, no amount of money will be enough to deploy the changes needed. In that case, California will be stuck with the status quo, and $4 Billion will be wasted.

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corndog said...

I share your assessment of the potential boondoggle for Californians this proposition represents. Here are some possible negative outcomes:

1-Since the proposition includes a provision to make sure the additonal tax cannot be passed on to the consumer, every California oil field will in the future get less capital investment, and that investment capital will go toward increasing extraction from non-California fields. Leaving that oil in the ground, WILL BECOME an option that will be considered.

2-The search for more oil in California will cease, if it hasn't already.

3-California will give other non-petroleum industries yet another reason to consider the state hostile to business. A message will be sent, and the damage will not be limited to the oil industry.

4-Jobs will be lost, and since the proposition increases the cost to the oil companies of extraction within the state, they will extract elsewhere, and tax revenues will be lost to the state, perhaps even exceeding the estimated $4 billion extortion.

C. Scott Miller, EDP said...

I share Californians' frustration with the fossil fuel legacy we inherited because we didn't do what we should have done 30 years ago - develop alternative energy fuels. That is a failure of leadership.

I would like to see funding support for deployment of systems because I don't think we will start finding real solutions until we try successful pilot processes out at commercial-scale. What is the real risk? How can we learn otherwise?

Investors are salivating to put money up for alternative energy projects. But they are unwilling to take on risk that depends on regulatory reform through the CA state legislature. That is where the battle is now and, unfortunately, it pits environmental technologists against environmental idealists.

Do we have a common cause? YES - changing the status quo - which we all can agree is an unacceptable threat to the health, draft status, and quality of life of our children and grandchildren.