I'd much prefer that California impose a large royalty on oil extraction and use the money to build electrified passenger rail. No way are we going to farm our way to a drive-thru motoring utopia.

Regarding Prop 87, you both bring up valid points - to me it seems many that understand the issues surrounding Peak Oil correctly advocate higher taxes on fossil fuels. Taxing consumers directly is not as politically expedient as taxing producers.  If there were a way to tax the producers and immediately give them this money back as a credit if they used the money for renewable energy development, I would be more for it.

Remember, the reason people are upset by XOM and others oil majors massive earnings is because oil is so non-discretionary in our economy. We dont gripe about Microsoft earnings, which have a much higher profit margin because we can choose to buy a computer or not - its not as easy whether to drive to work or fly to visit our parents.

I hope you two, and others like you, continue to have a civil, science based debate on these issues. Thanks.

Frankly, I now have further confidence that on balance the propostion is a forward step for California and I intend to vote in favor.

Roy
Santa Clara

The California Clean Energy Fund (CalCEF), a $30-million public benefit investment fund created via the PG&E bankruptcy settlement to spur investment and innovation in California's clean energy economy, announced a summary of its Fund 1 Portfolio.

Among the investments in the portfolio are Tesla Motors, makers of an all-electric high-performance sports car, and Imperium Renewables, a biodiesel producer.

The CalCEF Fund l portfolio is co-managed by three investment managers who, together, bring more than $5 billion in market power: Nth Power, DFJ Element, and VantagePoint Venture Partners.

"So this CalCEF fund is managed, apparently on my behalf as a taxpayer and ratepayer, by these investment managers, one of whom is VantagePoint Venture Partners. And one of their major investments is in Tesla Motors. At http://teslamotors.com/company_board.html we read that Tesla board member Jim Marver is co-founder and managing partner of VantagePoint Venture Partners! So this VC firm is taking California ratepayer dollars and funneling them into a private company that it is investing in and helping to manage. They are increasing the value of their own holdings and enriching themselves at taxpayer/ratepayer expense.

"This is just the beginning. If California Proposition 87 passes this fall (http://www.yeson87.org/ ) there won't be just millions, but billions of dollars being managed in just this way. According to the Sacramento Bee (http://www.sacbee.com/content/politics/story/14281078p-15089305c.html ) the funding for Yes on 87 comes from VC firms and managers who are already invested in the same companies and technologies that will see a windfall if this proposition passes. You can bet those are the same people who will be on the board to disburse up to 4 billion dollars, and they'll send it directly to the companies they are involved in, just as we are seeing here with this PG&E fund."

As for the claims that the Prop 87 disbursement board can't give money to their own companies, there are a million ways to maintain arms-length relationships and get around these restrictions. I'm sure the CalCEF board in the article above operates under similar limitations, yet we see that a board member is associated with the same VC firm that is a major investor in Tesla Motors, and sure enough the board gives a lot of money to that company.

We'll see exactly the same thing with Prop 87. All those Yes on 87 investors (Khosla's just one of them) are doing this to make money, pure and simple. If Prop 87 did not pass, probably most of those investors would give up on their alt-energy investments. Their whole play is to put money in advance into companies that are going to receive a windfall when this proposition passes.

I have one main concern about this initiative, which is that it charges a tax that oil companies are prohibited from passing on to customers.  That seems very difficult to police,  and has some logical problems. If a company finds that its costs go up, the company will find some way to increase prices to customers.

One contributing factor in the 90s energy deregulation debacle was that retail prices were capped, while wholesale prices were deregulated. This logical violation of the law of supply and demand broke the energy system.  Enron manipulated the system to drive the wholesale prices up, but the underlying problem was the flaw in design.

However, that was when oil was $10 or $20 per barrel. These new companies buy the rights and are able to make money off old fields. They use advanced recovery techniques and manage to get enough oil out that it is profitable at today's high prices. This is an important potential resource going forward. The total amount of oil left in these abandoned fields is substantial, and could make a difference if we hit a major oil production crisis in the next few years.

So what's going to happen to these small companies when they are hit by this new production tax? It's going to change the economics, which is already just barely profitable. Chances are that many fields which make economic sense to produce today will become uneconomic once this new tax is added. The result is just what economists would predict: taxing production means you will get less production.

Is this really what the voters of California are going to want, if and when we hit a Peak Oil crisis? Are they going to be happy with a measure which is driving oil recovery companies out of business and reducing California oil production? I'd suggest that this is the opposite of what we want to do.

If voters want to subsidize alt-energy companies, fine. Do it out of their own pockets. Lay a tax on themselves to fund the program. But don't con yourself into thinking you can tax the other guy and it won't cost you a penny. It's a discredit to the intelligence of the California voter that advocates of this proposition are trying to sell it on the basis of that old "it won't cost you a thing" con.

"I would like to say at the beginning that the goal of Prop 87 is to reduce the use of oil"

seems to me like the Bush admin saying that the goal of the invasion of Iraq was to find and eliminate WMD.  Sure, that would be nice, but not the main goal.  

The main goal of this legislation seems to be to find a way through technology and subsidy to continue the drive-everywhere-for-everything lifestyle that exists.   How else would you explain the fact that there is no mention of supporting smart land-use and effective mass public transportation ?   The part about the tax on oil extraction will probably slightly benefit California by making it slightly less attractive to deplete its reserves as quickly, but the odd phrase about not allowing this cost to be passed to consumers, shows that continued consumption growth is at the very least not looked at as a problem.  

Most of this debate is over the question of whether or not ethanol/biofuels will ever be an economically (without subsidy) viable liquid fuel, but a lot more of it should be over the effect of large-scale "crops for fuel" on ecological systems and food production, and the often very good technical debates on these subject overlook the more fundamental question of whether any of it is sustainable for any significant time period without significant changes to how we inhabit the landscape and operate our civilization.

~Mike
San Francisco

California would be better off jacking up the gasoline tax and using the proceeds for alternative energy, with the emphasis on cutting consumption of all fuels, whether alternative or not. They may eventually have to do this anyway to meet the emissions goals set by their recent greenhouse gas legislation.

Politicians perenially purchase votes by promising money and good times from thin air. But the money comes from the buyer of the product - or else it comes from investors, such as individuals, or agencies like the California pension fund acting on behalf of individuals. Investors and consumers are the only parties throwing major money into this pot, there are no others.

Now between those two parties, who pays? Well, it's just about impossible to tax investors in a narrow sector for very long. They can simply go elsewhere. This is why so many states worry about their "business climates" to an extent that constantly annoys and angers the Left. As already noted, pharma and Microsoft offer huge and unquestioned returns. (And Microsoft is getting to be almost as non-optional as a car - it's getting to be nearly impossible to find and take a job without using a computer, and Linux is not for the faint of heart.)

Furthermore, as many have noted on this site, the USA is in hock up far beyond its eyeballs. It has discouraged investment for decades now, by tax policies, by inflation, and by the anti-success social attitudes sometimes expressed around here. And investors, penalized in these broad ways, can simply switch to being consumers, as they have done on a massive scale. Why should anybody invest in oil, or wind, or anything like that, when they can get better - and tax free - returns on a house, and, to boot, they can live in the house?

With domestic investment, such little, net, as there is, diverted into real-estate, that leaves overseas investment. But even the Federal government, much less an individual state, can't hold overseas investors captive for very long. They can just leave. Though, I suppose, you could word the legislation to hold the California pension fund captive by ordering it to breach its fiduciary duty.

So, in general, pass as many laws as you like, and investors still don't pay, consumers pay. You can only alter how consumers pay. You can certainly fix things so that, rather than pay an honest price reflecting costs, they pay by spending endless hours waiting in line because of disinvestment-induced shortages. We did that repeatedly in the 1970s, and perhaps that sort of artificial crisis atmosphere is what some supporters are really after. However, I don't think Californians, who were certainly wedded to their cars even back then, but are far more wedded to them now, would be very happy with an abundance of "no gas" signs.

There is no such thing as a free lunch. So I think that if I lived in California, I would be inclined to vote against the proposition simply because of the fraud that seems to inhere  in its promotion and, I gather from your piece, in its very language. This subject doesn't seem to lend itself to honest discussion of costs and outcomes.

Having said that, 87 seems to have a couple of sound ideas behind it. One of them is, the idea that since California's oil can be extracted only once, it should be used to fund modes of renewable energy that will have to serve when the oil is gone. The second sound idea is, that royalties are a common practice. They might discourage some marginal production but in the end the oil companies who campaign against royalties, are every bit as interested as the VCs who want 87. Oil companies pay royalties to, or buy oil outright from, noxious regimes around the world -- does anyone really think Big Oil will find California less hospitable than, say, Nigeria? I also like the idea, as explained by Dr. Cohen, that the voters will have some say as to where the trust fund monies will go. Finally, one can only hope that California will set a trend. No one else has used oil revenue to fund the transition to renewables. Hopefully other states and countries will build on the idea of 87 and improve it.

Of course it would be great if the private market would fund alternative energy quickly enough to support a seamless transition to a renewables based economy. On the other hand if the world oil production curve ends up looking like that of post-peak Great Britain, we will be grateful if accelerated public investments -- or public/private partnerships -- help to cushion the fall.

http://www.yeson87.com/index.php/blog/entries/they_cant_have_it_both_ways/

It quotes the oil companies as saying that the price of oil is driven by market conditions. Then, it says the oil companies are being hypocritical for saying that oil prices will rise if their costs go up.

That just does not compute. Market forces include both trading  and costs. I'm sympathetic to the goals of prop87 but that blog post is specious.

My problem with this initiative is its creation of a bureaucracy to manage development of alternative fuels in the state. Who's in charge here? Manage means state-controlled - not free-market - development of the industry.

I think free enterprise - including, VCs, lobbyists, marketing partnerships, privately financed R&D, business investors, ... - offers a much more creative and sure-footed way of evolving this paradigm shift than anything a bureaucracy could come up with.

I sincerely believe that: 1) the money will sit and do very little while the politically correct, the state government, and educational institutions figure out ways to create fiefdoms to extend R&D contracts rather than work to solve problems; 2) privately financed R&D efforts to secure patents will suffer while competing with well-financed schools, and government efforts to provide their own solutions, 3) innovators who have invested heavily at the bleeding edge will get the shaft during this power play; 4) much of the collected tax will end up funding everything but alternative energy investment - including the Luddite ambitions of the Industry's opposition.

$4 Billion can be used to propel development or obstruct development. I'd rather Vinod Khosla reap the rewards for early investment in nascent albeit "high-risk" start-ups than watch the government throw wrenches in private enterprise. This is, after, California - the land where mis-begotten good intentions NEVER go unpunished.

Portland Oregon is the US poster child for Public Transport.

http://news.bbc.co.uk/2/hi/programmes/newsnight/4777801.stm

"Sarah Gilbert and Jonathan Hanson, two car-dependent Portlanders who have agreed to give up their beloved Mercedes SUV for a month and survive on public transport alone.

They're taking part in a challenge set by the Department of Transportation and Flexcar, a car-sharing business, to show just how easy and economical it is to use public transport.

Sarah, Jonathan and their two children have found using a mixture of Portland's integrated light rail, bus, streetcar, cycle lanes and free city centre transport far easier than they thought.

In fact they're now going to sell their SUV."

I think this is Alan's (from the Big Easy) coverage
http://www.lightrailnow.org/facts/fa_lrt_por.htm

http://www.lightrailnow.org/myths/m_por_2006-01a.htm
Operating Cost per Boarding Rider
Bus     $2.43
LRT     $1.54
Source: FTA data, Oct. 2005

"The MAX light rail in Portland carries 26% of all rush-hour commuters travelling in the Sunset Highway and Banfield Freeway corridors. Federal estimates are that this amounts to approximately 67,000 auto trips per day. Ridership has increased steadily for the last 17 years, and the new Interstate Ave. (Yellow) line carries 95% more passengers than the bus line on the same street that it replaced."

As far as it affecting my gas prices here in California .. gotta tell you I don't really mind.  We need gas taxes and backdoor ones are fine ... not that this is one (wink, wink).

1. I have read the Consumer Reports (http://www.theautochannel.com/news/2006/08/31/020480.html) that gasoline usage has went up 1% because of the credits automakers can buy in creating E85 vehicles: "This allows automakers to build more large, gas-guzzling vehicles than they otherwise could under Corporate Average Fuel Economy rules. As a result, these credits have increased annual U.S. gasoline consumption by about 1 percent, or 1.2 billion gallons." Is this not contradictory to the campaign promise that we will lessen our dependence on oil?

2. Is it a possibility that the oil companies will not be able to make the $4 billion in ten years, given the tax is only on CA oil and that they will have less incentive to drill in CA? Since the prop allows new programs to use state bonds, would it be possible that Californians will have to help bailout the state when the funds are not met by taxes?

3. How much greenhouse gas emissions does using Ethanol reduce versus gasoline? I'm hearing 20-30%, is this true?

I know of two government trust funds and both are deceptive and are in no ways secure - the Social Security trust fund and the nuclear waste trust fund.

Government uses these to collect taxes today and pass the problem and costs off on future generations, meanwhile spending today's surplus to buy votes.

It continues to amaze me how any advocate of an energy policy can think that people will buy the proposition that the solution to $3 a gallon gasoline is increasing the tax to make it cost $3.50.  Adding tax to oil and gas production in California will either raise the price or restrict the supply or both.

People are just not that stupid.

No on 87.