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Energy policy has dropped off the radar here at RedState ever since the price of gasoline crashed through $2.75 a gallon, headed south. As an issue, it’s so two months ago.

Leave it to the citizens of California to thrust energy back into the spotlight. On November 7, they will consider Proposition 87, a tax on the production of crude oil in their state. If enacted, it will generate proceeds of $200 million to $380 million per year; not only will that punish Big Oil, revenues will be directed toward researching energy alternatives with a goal of reducing California’s reliance on imported oil by 25%. Economic heavyweights no less than Al Gore and Julia Roberts just think Prop 87 is a swell idea.

Now, we’ve all had a dumb idea from time to time, regular old, garden variety “d’oh!” moments. But every once in a while, an idea comes along that is devoid of common sense in complex, intertwined ways, so multifaceted in its boneheadedness, so polymorphously, profoundly dumb. Such is Proposition 87.

Here’s the Non-Partisan Legislative Analyst’s analysis of the Proposition.

Here’s the Cato Institute’s take.

I first read of Prop 87 in a Reuters story. It’s billed as “Big Oil vs. Hollywood".

Oil companies have not fled other states that have an oil extraction tax, and they won't flee California either, [ex-President and energy expert Bill] Clinton told fans at UCLA. [More on Clinton here.]
Among the top oil-producing U.S. states, California is the only one with no tax for extracting oil. Similar taxes include Alaska, at 15 percent, Texas at 4.6 percent and Louisiana at 12.5 percent.

That’s true – as far as it goes. California has never before had a severance tax (a tax, in effect, on bringing oil out of the ground), but, according to the Legislative Analyst, “property owners in California pay local property taxes on the value of both oil extraction equipment (such as drills and pipelines) as well as the value of the recoverable oil in the ground.” This is not the case in all states, and California also has punitive corporate income taxes. Overall, California is considered a high-tax state.

According to the Reuters article, $107 million has already been spent by both sides in the fight over Prop 87. That’s about twice as much as has been spent of the hotly-contested race for governor. California-based Chevron Corp., the biggest single target of the tax, has spent $22 million so far.

Proponents of the tax unabashedly see it as a way to get back at Big Oil for high gasoline prices and unconscionable profits. Proceeds of the tax are supposed to be dedicated to research into alternative fuels, raising $4 billion over its 10 year term, with the goal of reducing the state’s consumption of oil by 25%. Somehow, they think they can keep the cost of the tax from being passed on to the consumer:

“The measure states that producers would not be allowed to pass on the cost of this severance tax to consumers through increased costs for oil, gasoline, or diesel fuel… While it may be difficult to administratively enforce this provision (due to the many factors that determine oil prices), economic factors may also limit the extent to which the severance tax is passed along to consumers. For example, the global market for oil means that California oil refiners have many options for purchasing crude oil. As a result, oil refiners facing higher-priced oil from California producers could, at some point, find it cost-effective to purchase additional oil from non-California suppliers, whose oil would not be subject to this severance tax.”

[Wait…I thought the point was to reduce California’s dependence… oh, never mind. Emphasis in original.]

[Are you with me so far? Are you as skeptical as I am that $4 billion will go to effective research, instead of into the State’s general fund? How, exactly, do you keep a corporation from passing its costs on to its customers? What will California take on next, the Law of Gravity?]

OK, so big, bad, California-based Chevron will pay through the nose if Prop 87 passes. In 2005, Chevron produced 32% of California’s onshore production, some 200,000 barrels per day of mostly high-cost, heavy crude. They also are the State’s largest refiner, with 500,000 barrels per day of refining capacity. Other big refiners in the state include BP, Shell, Conoco-Phillips, Exxon-Mobil, Valero…you know, “Big Oil”. These guys are really gonna get socked by this tax, right? Right?

Wrong! Remember that a severance tax is a tax on the producer. The only other refiner that has significant production in the state is Exxon-Mobil, California’s #12 ranked producer, with some 4,400 barrels per day of production (a comparative drop in the bucket).

So who produces all the oil in America’s #3 oil producing state? Independent producers, mostly. Companies you’ve probably never heard of because they don’t own refineries and don’t sell gasoline. Aera Energy LLC has nearly as much oil production and more natural gas production than does Chevron. Plains Exploration and Production, Breitburn Energy Corp., Berry Petroleum, MacPherson Oil Co., Signal Hill Petroleum, Tidelands Oil Production Co., Blacksand Energy.* You get the picture. These aren’t the Seven Sisters, far from it. Many of these companies are not publicly traded; none are big international conglomerates. With the exception of Chevron, the big multi-national companies left California years ago, based largely on the notion that it’s hostile to business, especially the energy business. How’d they get that silly idea?

These companies, most of them anyway, will not leave California if this tax takes effect. They won’t be able to afford to leave, because the value of their assets will be diminished, and there will be fewer buyers looking to do business in a state as hostile to producers as California. What they will do, however, is stop drilling as many wells. Last year, some 2,600 wells were drilled in California. Higher productions taxes hurt the economics of new drilling. Independent oil and gas companies drill 90% of domestic wells. Most of California’s production is from very old fields, which are dependent on new wells being drilled to bolster naturally declining production levels.

So, there you have it. A coalition of anti-corporate liberals, greens and tax-tax-tax Democrats exploiting the anger of motorists, with a master plan to punish Big Oil and end the energy crisis in one fell swoop. If enacted, the outcome is perfectly predictable: California’s crude oil supplies go down, they become more dependent on outside sources of oil, gasoline prices increase, California punishes California-based businesses and California politicians get 4 billion new dollars to play with. And the tax becomes permanent. And there will be no new technology to come from this.

* [Oh, and Occidental Petroleum. You know, Al Gore’s Occidental Petroleum; they’re one of California’s largest producers, too.]