NCPA - National Center for Policy Analysis

CALIFORNIA'S CRUDE ENERGY PLAN

May 22, 2006

Voters in California may get to decide in November if the path to energy independence lies in punishing those who produce energy and make money from doing so, says Investor's Business Daily (IBD).

Recently, election officials took receipt of petitions with 1.2 million signatures in support of a proposition to tax all oil extracted in California and use the revenues to "promote" research on alternative sources of energy. The proposal would increase the tax rate on gasoline prices, topping out at a maximum rate of 6 percent. To ensure that greedy gas station owners and oil company executives won't raise prices to cover the tax, the measure specifically prohibits that.

Other impacts:

  • At least an extra $4 billion in taxes that oil companies would otherwise use to look for new sources of oil, which is where a major portion of their profits go.
  • Creation of a de facto "windfall profits" tax; when it was tried in the 1970s, domestic oil production declined 3 to 6 percent, while oil imports increased 8 to 16 percent.

Ironically, the measure has attracted financial support from venture capitalists in Silicon Valley. Ironically because the latest reports show Big Oil's big three -- Exxon Mobil, ConocoPhillips and Chevron -- earned 8 cents on every dollar of sales. Meanwhile, high-tech companies like Google, Yahoo and eBay, all conceived in Silicon Valley, pocketed 19 cents on the dollar.

We must remember, says IBD, that oil too was once an alternative energy source. And newer alternatives will take off when they become economically competitive, and when people are free to innovate and make a profit from them. Until then, the way to lower oil prices is to increase supply. And the way to increase supply is to let people make money doing so.

Source: Editorial, "California's Crude Energy Plan," Investor's Business Daily, May 17, 2006

 

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