California Campaign Seeks Tax to Fund New Fuels

A proposed initiative to levy a surcharge on California oil could set off a big-spending battle.

Published: 02-Feb-2006

SACRAMENTO -- Voters may get the opportunity this year to slap a new tax on oil pumped from California wells and use the money to pay for a variety of alternative energy programs aimed at cutting the state's petroleum use by 25% in a decade.

Hollywood producer and political activist Steven Bing and Silicon Valley venture capitalist Vinod Khosla are bankrolling a campaign for a ballot initiative that, if approved, could raise as much as $380 million a year to develop alternative fuels.

The initiative, which would amend the state constitution, could face little difficulty getting a place on the November ballot because of public outrage over sky-high gasoline prices and record profits at oil companies. In his State of the Union speech Tuesday night, President Bush endorsed alternative fuels as a way to decrease U.S. dependence on imported oil.

If it qualifies for the ballot, the initiative could set off another big-spending media slugfest with millions of dollars going to TV advertising, some of it likely to feature Hollywood stars.

A coalition of oil companies and anti-tax activists is already organizing a counter-campaign, arguing that the alternative energy initiative is "nothing more than a hidden tax which could cost consumers and businesses hundreds of millions of dollars every year in higher gasoline, diesel and jet fuel prices."

Bing declined to comment and Khosla was unavailable, but a spokeswoman for their campaign said the two men and their allies, who include university scientists, environmentalists and economists, expected to spend in excess of $10 million to "mount an aggressive, competitive campaign."

Bing is well known in Hollywood both as an investor in such films as "The Polar Express" and as a companion of beautiful women, including actress Elizabeth Hurley.

Bing, who has been shopping his initiative proposal to Hollywood insiders for at least the last month, appears to be trying to mine the same type of deep-pocketed, liberal-conservative support behind a successful 2004 ballot measure that created California's pioneering stem cell research organization. Between them, Bing and Khosla contributed more than $1 million to that campaign.

Proponents of the alternative energy measure contend that California, the third-biggest crude oil producer in the nation, should begin collecting a so-called extraction tax, as do Texas, Louisiana, Alaska and other petroleum-rich states. The initiative would bar oil companies from passing the tax on to consumers in the form of higher pump prices, though enforcing the prohibition could prove difficult, the legislative analyst's office said in a Jan. 25 review of the initiative.

Dubbed the Clean Alternative Energy Act, the proposal is expected to be ready to circulate next week. It needs valid signatures from about 600,000 registered voters to appear on the ballot, the secretary of State's office said.

John Martini of the California Independent Petroleum Assn. said his members, which range from industry giants such as Occidental Petroleum to small operators that produce as little as a hundred barrels a day, would put together "a serious campaign" because "this is a direct attack on their livelihood."

"Consumers absolutely will wind up seeing an increase in their costs," Martini said, noting that his members already carry the third-highest tax burden of producers in any oil state.

Based on private polling, the campaign expects a sympathetic hearing from voters, campaign spokeswoman Fiona Hutton said. The message, which is in step with Bush's call for a 22% increase in federal funding for alternative energy research, will focus on the economic and environmental benefits of developing cleaner vehicles, such as hybrids and trucks that run on compressed natural gas, she said.

Campaign ads will argue that California oil producers should be "paying their fair share" at a time when they're making record profits with crude oil selling for more than $65 a barrel on international markets, Hutton said. On Monday, Exxon Mobil Corp. said it earned $36.1 billion last year, the biggest annual profit ever reported by a U.S. company.

Income from the tax would be administered by a new state agency, which could raise additional funds by selling bonds backed by future revenue from the tax, said Ralph Cavanagh, the Natural Resources Defense Council's energy program director in San Francisco.

The new independent agency would earmark 60% of the money for programs designed to develop alternative vehicles and fuels to reduce gasoline and diesel use, 27% to pay for research at California universities, and the rest mainly to help companies put new products on the market.

California is losing out by failing to collect an extraction tax on oil pumped here, Cavanagh said. He likened the proposed tax to surcharges the state puts on consumers' electricity and natural-gas bills to fund renewable energy and efficiency programs.

He argued that a small hike in the cost of the 773,000 barrels a day of oil produced in California would have little effect on prices on a world market in which 85 million barrels a day are bought.

But California tax authorities could run into difficulties trying to determine whether producers are passing the tax on to motorists, according to the legislative analyst's office, which reviews all ballot initiatives. What's more, the analyst's office questioned whether collecting the tax could lead to reductions in state and local revenues, particularly from lost property and corporate income taxes.

It typically costs about $1 million to pay signature collectors to qualify an initiative for the ballot. That shouldn't pose a problem for Bing and Khosla.

Bing, 40, a major contributor to the Natural Resources Defense Council, is one of the largest Democratic campaign donors in California and the nation, giving at least $30.5 million since 2000. He backed Proposition 10, a successful initiative that hiked cigarette taxes to pay for early childhood programs.

In 2004, Bing wrote checks for $13.8 million to support presidential candidate Sen. John Kerry and other Democrats running for office.

Khosla, 50, a Silicon Valley Republican and founding chief executive of Sun Microsystems Inc., also is a big campaign contributor, having given $3.5 million to state campaigns since 2000. Khosla, a partner in prominent venture capital firm Kleiner, Perkins, Caufield & Byers, now invests his money in select deals with so-called clean technology industries such as biofuels, fuel cells and solar power.

Though he's been a major campaign contributor, Bing is better known for his movie production credits and social escapades. Besides helping to finance "The Polar Express," he has produced such films as "Looking for Comedy in the Muslim World."

Bing earned notoriety a few years ago for a paternity battle with British actress Hurley, a former girlfriend. He is the grandson of Leo S. Bing, after whom the auditorium at the Los Angeles County Museum of Art is named.

It's not clear whether Bing has enlisted any A-list celebrities in his campaign. However, Hollywood has a history of backing environmental causes.

Last summer, for instance, actors Edward Norton and Ed Begley Jr. spoke at media events in Los Angeles in support of Gov. Arnold Schwarzenegger's proposal to dramatically increase California's reliance on solar power. Begley also was a major backer of the so-called Big Green environmental initiative that was defeated overwhelmingly by California voters in 1990.



The forecast consumption of coal, nuclear and renewables have been increased from earlier predictions, while petroleum and natural gas consumption are lower.

The United States accounts for 2,544 MW of total installed capacity and 1,914 MW of operation, and the difference is due to a lack of steam due to over-exploitation of the Geysers field in California.

February 28,2006 address to National Governor's Ethanol Coalition.


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