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By Robert Rapier on Oct 25, 2006 with no responses

Prop 87: A Reader Responds

Below is a response from reader Earl Killian, who lives in Silicon Valley. Earl sent me an e-mail a couple of days ago in response to my August essay on Prop 87:

California’s Proposition 87

It is getting close to election time, so this is a good time to revisit the issue. Besides the entry above, previous entries on Prop 87 are:

More on California’s Proposition 87

Prop 87 Interview

Addressing Proposition 87 Criticisms

Breaking Down Prop 87

Another Khosla Critic

Wow. I have written on that a lot more than I thought (although the 3rd link in the list is a pro-87 guest essay).

Anyway, I thought Earl made some very good points in his e-mail, and instead of having his comments buried in a 2-month old post, he gave me permission to post it here. I disagree with his belief that it won’t raise prices, and I may briefly comment after the essay.

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I came across your blog entry from mid-August about Prop 87. It seemed like a long time later to post a comment, so let me send an email. I can always post something if you tell me you would prefer that.

First, I can certainly sympathize with your outrage at the way Prop 87′s proponents are selling the Yes vote (and equally with the opponents selling of the No vote). However, all California ballot propositions are like that unfortunately (I have ideas on how to fix ballot propositions, but that is another matter altogether).

My big concern with what you wrote is your statements about price increase. It seems that you are missing a key item. The refineries will not pay any more for their crude, and so there will be no price increase to pass onto the consumers. The oil field operator will feel the pinch, not refiners like Chevron, etc. The oil field operator has to compete with imported crude oil, and so he cannot raise his price; the refinery would be happy to buy crude from Iran or Russia if they save $0.01 per barrel (of course certain refineries are set up to process certain kinds of crude, and cannot switch as easily, but I think they still have alternatives). All of the economists I’ve heard seem to agree on this point, by the way.

In reality this is unfortunate. A price increase at the pump would be a better tax exactly because it would actually increase gasoline prices. Increased gasoline prices would do as much to spur innovation as state funded research. Still, I believe the authors of this initiative went for an oil field tax precisely because they wanted to be able to say that gasoline prices would not rise (i.e. clever politics, not good policy).

I am also surprised with the degree to which Prop 87 is seen as an ethanol measure. Sure, ethanol will get funded, but with many other things as well. Like you I think Khosla is wrong, and ethanol will fail. However, let’s say biodiesel from algae (which really looks quite promising) succeeds. Ethanol will be a dusty footnote.

The state of California actually has decent track record at making significant progress on things like this. Let’s take another effort from the distant past (mid 1970s) as an example. Please download http://tinyurl.com/y5el2l and look at page 14 and compare the yellow line (California) to the purple line (what we would have if not for our state government’s efforts). It indicates all too well the problem of having a red white house.

The graph may seem abstract and not very significant, but the difference is HUGE. There is a gigaton of CO2 per year hidden between two lines of that graph. Just bringing the U.S. per capita kWh of 11,997 down to the California level of 6,732 would cut U.S. greenhouse gas emissions (from all sources, including transportation) by at least 17% (as much as 30-some percent if we used the saving to selectively close coal power plants). Were the U.S. to get to California’s level, we’re talking about nearly one gigaton of CO2 per year that would not be fouling Earth’s atmosphere.

Said another way, had California not been a leader, the U.S. would be emitting some sizable fraction of a gigaton CO2 more than it does today (add up the population of just California and New York–which followed California’s lead–and you get 18% of the U.S. population). (See http://tinyurl.com/zfehv for state rankings in per capita kWh use.)

I have looked over the text of Prop 87. Like every other ballot initiative I’ve ever read, it stinks. Still, I have voted for a number of stinky propositions because they are better than the alternative. I think Prop 87 falls in this category.

Again, I agree with you that corn ethanol is not the answer. Where I differ is that I don’t think Prop 87 is all about ethanol. Sure, some ethanol efforts will get funded as a result, but so will some things that might make as much of a difference as what California did from the mid 1970s onward to lead the nation in electric efficiency. Prop 87 will have a nine-member commission appointed by various interests. Even if Vinod Khosla is one of the nine, I doubt a group of diverse individuals will swallow the ethanol-only pill (now would that be a blue pill?).

The California Energy Commission did an OK job on keeping kWh per Californian down. I think the “bureaucracy” should be commended, not condemned for that. (There’s plenty of waste still to complain about, but it would have been even worse without the CEC’s efforts.)

-Earl