California Oil Tax: Will Golden State Voters Hit Energy Companies Where It Hurts?

April, 2013
Huffington Post

"Placing a modest fee on petroleum and gas that is extracted from California can only benefit our state," said Dr. Daniel Kammen

SAN FRANCISCO -- A group of young environmentalists in California are using Earth Day to call attention to what some see as a glaring flaw in the Golden State's regulatory system: the lack of a tax on oil extraction.

California, which at just over 500,000 barrels a day is the fourth largest oil drilling state in the country, is the only major energy-producing state without a significant, specific tax on taking oil out of the ground.

U.C. Berkeley student Jack Tibbetts hopes to rectify that problem. The political science undergraduate wrote the California Modernization and Economic Development Act (CMED), a measure that would impose a 9.5 percent tax, levied at the point of extraction, on the gross market value of every barrel of oil produced in California.

Supporters of the measure held an Earth Day rally on the U.C. Berkeley campusMonday morning.

"Placing a modest fee on petroleum and gas that is extracted from California can only benefit our state," said Dr. Daniel Kammen, a Nobel Peace Prize-winning U.C. Berkeley climatologist. Kammen co-authored 2006's unsuccessful Prop 87 ballot measure, which would have imposed a similar, albeit smaller, tax. "It would spur innovation on the producer side to reduce costs and bring in funds that are critically needed to green the economy, re-invest in education, and renew cities and parks across the state."

Tibbetts' proposed ballot measure, which supporters hope to put before California voters next year, would generate $2 billion in annual revenue to go toward K-12 education, California's community colleges and universities and park infrastructure. It would also create $400 million in grants to businesses for clean energy projects like installing solar panels or transitioning truck fleets to run on cleaner-burning natural gas.

Supporters expect to begin collecting money and signatures backing the measure in the coming days. They say it was specifically written to protect all money generated by the tax from being raided by the state's general fund for other projects.

"We have a huge pension problem [in the state] and there are debts that need to be paid down -- like with CalPERS, CalSTERS, etc.," explained Tibbetts. "We were afraid that by allocating this money to the general fund, all of it wouldn't be directed toward what we wanted it to."

Tupper Hull, vice president of strategic communications at the industry-backed Western States Petroleum Association, which opposes the legislation, noted that California already imposes a property tax on oil extraction, helps fund the state's Department of Oil, Gas and Geothermal Resources.

California's property taxes are based on the present value of the land, which includes any oil resources underneath it. Hull argues that imposing an additional tax at the extraction point would provide less of an incentive to drill for oil here, thus resulting in a net revenue loss for the state.

"Every barrel of oil that isn't produced in California will come here in a tanker," Hull said. "We will end up increasing our dependence on foreign oil and increase the price of energy for Californians."

But the measure's backers insist Californians won't notice the effects of the tax when they head to the pump.

"We know for certain the taxes won't be passed onto California consumers," said Tibbetts, noting that imposing extraction taxes in heavy oil production states like Texas, North Dakota and Alaska didn't trigger large price hikes at local gas stations. "Over 60 percent of the oil extracted in California won't even be sold here. All potential price increases will be diluted into the global oil market."

The measure's backers face an uphill battle, as myriad attempts in recent years to pass similar measures have all fallen short.

In addition to the failure of Prop 87 in 2006, State Senator Noreen Evans (D-Santa Rosa) introduced an unsuccessful extraction tax bill in 2009. Earlier this year, Evans tried again with a bill that, much like CMED, would direct money raised by the tax toward education and the state parks system.

"California is the largest--and only--oil producing state in the nation that does not tax its vast oil resources," Evans told the Los Angeles Times. "California’s oil resources have made trillions of dollars in profits for the oil industry. Imagine what mere billions could do for Californians.”