Let me start off by saying that I work for a major oil company. Some of you may stop reading right there, but my career has been one largely devoted to alternative energy. I did my graduate work on cellulosic ethanol, and I came to work for an oil company to work on a gas-to-liquids (GTL) project. I am a staunch advocate for conservation, and I would love nothing more that to see us weaned completely from fossil fuels - even if it meant that I have to look for a new job.
However, I don't see the Prop 87 issue the way many of you do. I wrote a recent essay detailing my problems with the initiative:
California's Proposition 87
In brief, I have a couple of issues, mostly related to the issue of truth in advertising. Proponents claim that this won't raise gasoline prices in California. That is one of the most naïve assertions I have ever heard, and it displays ignorance of how markets actually work. As I explained in my essay above:
When the initiative passes, oil companies will have a new tax to deal with in California. The returns on capital invested in California will drop, and it will be less profitable to extract oil in California. Each year oil companies determine where they will allocate capital to various refineries in the country based on expected returns on various projects. Refineries in various locations compete against each other for capital allocations, and now California will be at a bit of a disadvantage because they will be paying more for their crude. Not only will the returns from California be lower, but questions will arise as to when they might hold another initiative to increase the tax (ala Chavez). California refineries will get just a bit less of that capital, which over time will squeeze supplies. As gasoline capacity fails to keep up with demand, higher prices will result.
One of the major proponents (actually, THE major proponent) admitted to me in a telephone conversation that the scenario I have laid out - decreased capital allocations to California - is likely. He just thinks ethanol is going to step in and fill the supply shortfall.
The second problem I have is the animosity that is being directed at my industry, especially when it is based on misinformation. Many of you hate oil companies. I understand that. But some proponents of Prop 87, like Vinod Khosla, are using misinformation to work voters up. Check out this essay he wrote for The Huffington Post:
Big Oil's Big Profits, and the Big Lies They're Telling to Maintain Them
A very inflammatory title, and lots of inflammatory rhetoric. Some excerpts:
You thought you were being ripped off at the pump. You are, but that is only half of the story -- the rip-off goes far beyond that.
As I blogged here previously, many of the big oil companies are raising prices at the pump while standing in the way of progress on immediately viable alternative fuels (while pretending through their vast network of slick lobbyists, consultants, ad agencies, PR firms and token investments, to be committed to alternative fuels) to lessen our oil dependence.
If the money and inside-Sacramento power of the big oil companies is going to allow them to rip Californians off, then certainly we Californians have the right, if not the duty, to join together and stand up for ourselves. But more on how they buy California (and National) politicians in a future blog (yes, post or email me your favorite big oil stories at vinod@yesoncleanenergy.com and I will feature them here).
What is my objection? Mr. Khosla is investing in the industries that will benefit from this initiative, which he is funding. Mr. Khosla admits that ethanol companies have higher profit margins than do oil companies. Yet he complains that oil companies are ripping you off, and wants to direct money toward his own investments, which already have higher profit margins than do oil companies. I have a bit of a problem with that.
I reiterated these concerns in an interview yesterday with California Politics Today:
Robert Rapier talks about Vinod Khosla, Proposition 87, peak oil, and the need for transportation electrification
However, there is a good reason to support Prop 87. I don't like the fact that voters are being misled, but I do like the fact that gasoline prices will go higher. In my opinion, higher gas prices are needed to encourage conservation. So, I would consider supporting Prop 87 because I think it will have the exact opposite effect on gasoline prices that proponents claim.
I have an acquaintance who helped write the language of the initiative, but I strongly disagree with her that it will have the intended effect. I believe it will increase gas prices, and in the ultimate irony oil companies will be blamed. I don't believe the proponents will be held accountable if the initiative fails as I expect it will. Regardless, my prediction is that the proposition will pass by a comfortable margin.
Cheers,
Robert Rapier