Oil tax on November ballot would fund alternative fuel

An initiative on the November ballot would tax oil producers 1.5 percent to 6 percent, depending on the price of oil.

The tax is estimated to generate $4billion over 10 years, money that would pay for research and development of renewable energy sources, including solar and wind power, as well as alternative-fuel vehicles, said Julie Buckner, spokeswoman for the California Clean Energy initiative.

The goal is to reduce California's dependence on oil by 25 percent over the next 10 years, Buckner said.

"This is about having the oil companies pay their fair share for taking a California resource and making world-record profits off of it," Buckner said. "Voters ... are angry and outraged by the cost of gas at the pump, and they hold the oil companies accountable for that."

But Californians Against Higher Taxes already has raised $10million to fight the initiative, said Scott Macdonald, communications director for the No on the Oil Tax Initiative campaign. Many oil and energy companies have contributed large sums of money toward the campaign, according to finance reports.

The oil tax will create unnecessary bureaucracy and drive up gasoline prices, Macdonald said.

"You take a commodity and increase the cost of producing it by $4billion, you are going to feel that," Macdonald said.

The initiative would bar oil companies from passing the cost of the tax on to consumers. However, the tax would affect overall oil production in the state, which eventually would lead to higher gas prices for Californians, Macdonald said.

"Marginal operations for oil will no longer be profitable, so you will have less oil produced in California," Macdonald said. "Then you increase the import of foreign oil, which is more expensive, so that will cause gasoline prices to go up."

In 2004, California produced 268million barrels of oil, representing about 12 percent of U.S. production. California oil production supplies about 42 percent of the state's oil demand, according to the state's Legislative Analyst's Office.

A new oil tax such as this might put a dent in oil production as well as the investment in new technologies meant to expand production, according to a report released by the Legislative Analyst's Office.

But industry analysts say it's unlikely such a tax would force higher gas prices.

Since the tax would decline as the price of oil fell, it would not hurt production or affect gasoline prices, said Severin Borenstein, director of the University of California Energy Institute.

Borenstein said the tax is not that high, noting that other states already have higher taxes on oil production, including Texas. California oil producers currently pay a severance fee, which is significantly lower than in other states, Borenstein added.

"No one will shut down a well because of this," Borenstein said, adding that at most, it will discourage new oil-production projects. "I have seen no evidence this incremental loss in profit (for the oil companies) is significant."

A spokeswoman for Gov. Arnold Schwarzenegger said that while he believes the state should invest in alternative energy sources, the governor does not support this initiative.

Contact reporter Erin Sherbert at (209) 833-1143 or esherbert@recordnet.com