Initiative seeks to add new tax to oil companies’ profits

Alternative energy researchers are hoping that California voters get a
chance to act on their rage against oil companies at the ballot box in
November–and alternative energy companies are pointing to the initiative as
the boost needed to get the industry off the ground. However, critics of a
new initiative effort say the main beneficiaries would be the venture
capitalists behind the campaign.

The group Californians for Clean Alternative Energy is gathering signatures
to place an initiative on the November ballot that would impose a tax on oil
production in California. The Clean Alternative Energy Act would place a tax
of between 1.5 percent and six percent on the value of oil drilled within
the state borders, with the percentage being going up along with the price
of oil. The money would then be used to fund alternative energy research,
incentives for clean vehicles and other programs.

Given that California trails only Alaska and Texas in domestic oil
production, this would result in significant amounts of research money: an
estimated $380 million a year between 2007 and 2017. The tax would expire in
2017 unless extended by voters. California produces 268 million barrels of
oil per year, 12 percent of the nation’s total, according to state figures.

According to Fiona Hutton, a spokeswoman for the initiative’s sponsors, oil
companies would be legally barred from passing the cost of the tax on to
consumers. States are allowed to do this, she said, as validated by the 1983
Supreme Court decision Exxon vs. Alabama.

“You’ve got big oil companies reporting record profits while Californians
are paying someone of the country’s highest gas prices,” Hutton said. She
also pointed towards a hearing in Washington D.C. earlier this week, when
politicians from both sides of the aisle excoriated oil company executives
for these profits.

According to Jon Van Bogart, western region sales manager for the Texas
company Clean Fuel USA, a November poll conducted by the National Resources
Defense Council found that over 70 percent of California voters supported
the ideas in the initiative. Meanwhile, he said, chronically underfunded
energy researchers are champing at the bit.

“That would apply more money to alternative fuel programs than has been
supplied in U.S. history,” said Van Bogart.

But Al Lundeen, a spokesman for Californians Against Higher Taxes encouraged
voters to look at who is behind the initiative: Hollywood producer Steven
Bing and Silicon Valley venture capitalist Vinod Khosla. The two have given
a combined $2 million, Lundeen said. Lundeen’s group, meanwhile, has
gathered more than $500,000 to oppose the initiative, most of it from oil

Bing is a major Democratic donor. Khosla, Lundeen said, stands to gain if
the initiative passes. His former employer, Kleiner Perkins, is a major
investor in Ion America, a company that makes fuel cell technology. He
started his own venture capital firm last year, Khosla Ventures, and has
been touting the potential of biofuels developed from plants.

Lundeen also pointed to a January report from the Legislative Analyst Office
that pointed out that oil companies would deduct the severance tax from
their profits, reducing the income taxes and other taxes the state could

University of California at Berkeley energy professor Dr. Daniel Kammen
pointed out that the many other states have taxes on oil producers. This
includes the two biggest oil producers, Alaska and Texas, which have taxes
of nine percent and five percent, respectively.

State Senator George Runner, R-Antelope Valley, countered that those states
have far lower burdens in terms of environmental regulations and other
taxes. There are already so many limitations on oil production in California
that oil producers in his district have sometimes stopped pumping.

“You can’t just say that Texas has this tax so we need this tax,” Runner
said. “You have to look at the whole cost of doing business.”

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