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.

7 thoughts on “Prop 87 Post Mortem”

  1. If I was an oil exec, I’d be taking the 5 cents per gallon or whatever I fear I’d be taxed, and invest it in renewable energy research. Maybe it’s a money loser, but they’d have the chance of profiting from the payoff. As a bystander, I’d prefer it too, because I’m sure they’ll spend the money more wisely than government.
    Heck, if I was an oil exec, I’d take the enviro’s line and voluntarily raise oil prices, and put all the proceeds into alternative fuel research.

  2. I voted against 87, and I’m glad it was defeated. We don’t need more disincentives to produce our oil – we need more disincentives to consume it. Proponents of alternative energy should be up front about this. I’d have voted for a gasoline tax to fund energy alternatives.

  3. Here’s my theory: In future we are all going to be buying renewable fuel from the same evil Big Oil we now love to hate. Who else has the deep pockets to fund renewable fuel plants? Who else has the distribution network in place, complete with willing clients? Who better to judge if a technology is feasible, or just political grandstanding?

    IMHO, the fact that the oil companies have not been falling over themselves to get into renewable energy thus far, says more about the available technologies, than about the oil companies. It is also beginning to change.

    Shell is already supporting Iogen, the sole (potential) provider of that silver bullet, cellulosic ethanol. BP is making all the right noises, getting involved in solar power, etc. UOP, a petrochemical technology provider is developing technologies to add brown grease (a waste product) to conventional refinery processes.

    And if the oil companies are too slow out of the blocks, there would always be the auto companies. Like Volkwagen and DaimlerChrysler working with the German biomass gasification company Choren.

    But why would a competitive oil company want to loose out to an auto company, when there is serious money to be made? Not to mention the green credentials that such a project would deliver…

  4. Optimist said, “Here’s my theory: In future we are all going to be buying renewable fuel from the same evil Big Oil we now love to hate.”


    You’re theory is correct, but not for the reason you think. The reason is that Bil Oil companies are not really oil companies but ENERGY companies. They are also smart.

    They will move into whatever form of energy stands to make the most money for them. For the last 70 years or so that has been oil because oil is so energy dense, until fairly recently has been easy to find, and they could make huge profits at it.

    As oil discovery, recovery, and production peaks they will quickly adapt to producing and selling whatever form of energy they can make money at.


    Gary Dikkers

  5. For what its worth, siting an ocean and a continent away from California, it looks to me like there was enough room in 87 for the oil side of the argument to exploit and plant some pretty fast-growing seeds of doubt in the minds of the Californian electorate. Electors are not going to vote for anything that might impose a vast, inefficient organisation on them.

    Garry’s right they’re energy companies not gasoline firms… they’ll supply energy in any form that makes enough profit for shareholders…

  6. Oil companies care not a fig about alternative energy. Oil
    is where the profit is, and as they see it, where the profit will
    be for several decades to come. They are right. Innovation is
    expensive and risky. Why waste the money? Oil is the proven
    money maker.

    They may say that it’s important to develop alternative energies and
    they may even have some investments, but it’s all for show.
    It’s similar to the show that tabacco companies
    put on when they buy spots which are supposed
    to discourage teens from smoking (and, as they well know, have
    just the opposite effect).

    The oil companies are doing the right thing. The right thing for
    shareholders, and, most importantly, the pocket books of
    upper level execs. I don’t blame them. That’s the nature of
    the beast.

    They saw prop 87 as a threat that would lower profits.
    They reacted. The adds convinced enough that it was
    a bad idea. I don’t think you have to look further than that
    to see why the prop failed.

    Prop 87 or no, gas prices will go up as consumers get used
    to higher and higher prices (will the day come when we think
    that $3.15/gallon is a bargin?).

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