Consumer Energy Report is now Energy Trends Insider -- Read More »

By Robert Rapier on Nov 8, 2006 with no responses

Prop 87 Post Mortem

Well, I was wrong. I have consistently predicted that California’s Proposition 87 would pass. I knew that support had been slipping as gas prices have fallen, but I still thought that when the time came to vote, the voters would choose to punish the oil companies. But Prop 87 looks to be headed toward a sound defeat tonight.

What Went Wrong

I can point to numerous things that went wrong with the “Yes” campaign. While I really was pretty ambivalent about the initiative, I was not ambivalent about the tactics that the “Yes” campaign utilized. Several months ago I commented to a person that was associated with the Yes campaign that it almost seemed like they were running a parody of a political campaign. They displayed a stunning level of naivety over energy issues and energy policy.

The L.A. times characterized this initiative as “deceptively marketed”, which was also the title I chose for my first Venture Beat article on the initiative. The California papers almost unanimously opposed the proposition. So, the Big Oil hate-mongering from the Yes camp rang a bit hollow when all the newspapers were editorializing against it. Were they all in the camp of Big Oil? Were Vinod Khosla’s hometown papers, all of which endorsed a no position, in the camp of Big Oil?

I found it very difficult to read Vinod Khosla’s essays in favor of Prop 87. I felt like most of it was very condescending drivel, more appropriate for a grade school audience. He would have been taken a lot more seriously had he stuck with the facts, and avoided all of the emotional pleas to punish oil companies. Clearly, he hates the oil companies. We got it. But as he continued to write, I was just waiting for him to claim that refinery boilers are fueled with homeless children.

There were also a number of times that the Yes campaign demonstrated that they didn’t even know what was in the initiative. An example of this was reported last week at the No on 87 website:

KGO-AM’s Ronn Owens hosted a spirited debate over Proposition 87 (the $4 Billion Oil Tax Initiative) in San Francisco today.

I went up against Beth Willon, who represented the Yes on 87 campaign.

At one point Willon tried to make the argument that Prop. 87 “will only last 10 years.”

I responded by pulling out the actual initiative text and reading Section 26029.4 which states “the authority may be terminated at any time by the Legislature no sooner than January 1, 2027 or after the assets of the authority have been fully expended, whichever is later.”

Beth’s only response was that I was reading “very deep” in the initiative text. Somehow I think the “deep” parts count too.

It would be funny if it weren’t such a serious subject. The proponents also frequently characterized this as an excess profits tax, when it was actually a severance tax. The difference is that even when oil companies are in a down cycle and profits are much lower (or nonexistent), they get to keep paying the severance tax.

But I think the thing that really persuaded people to vote “no” was the uncertainty of the impact on gas prices. I was with the vast majority of economists in my belief that this proposition would drive up gas prices. But the overall amount was uncertain. The initiative would have impacted the supply/demand balance in California, with uncertain results.

I am certain I could have come up with a better proposition to promote alternative energy. I believe the voters would have supported a nickel a gallon gas tax increase with the proceeds going to fund alternative energy. That way, the price increase would have been known. In fact, since higher gas prices correlate with lower demand, a nickel gas tax increase might not have caused gas prices to increase by a nickel. And I don’t think the oil companies would have come out so strongly in opposition. And when you run a campaign that essentially paints the opposition as being responsible for all of society’s ills, you better make sure your nose is clean. In this case, Mr. Khosla’s engaged in quite a bit of hypocrisy, and that was used effectively against him.

I don’t doubt some new version of Prop 87 will be resurrected in the future. If any of you proponents are going to try this again, feel free to send me an early draft of the initiative and I would be glad to critique it for you. But get someone else to run your campaign the next time around.

Note: I am going to be out of town for the next few days with no access to the Internet, but I did want to offer up my thoughts on the election as soon as the results were clear.