Commentary: Are California oil companies warming to carbon tax?

The Sacramento BeeDecember 12, 2012 


Dan Morain is a columnist for the Sacramento Bee.

SCOTT LORENZO — MCT/Sacramento Bee

Oil companies and taxes are a little like gasoline and lit matches.

The oil industry spent $93 million to blow up a 2006 initiative that sought to raise an oil severance tax. Taxes are not part of oil executives' DNA. But ever so cautiously, the industry is contemplating a California carbon tax.

It's all very preliminary. But that oil representatives are mulling a tax reflects their concern about California's efforts to restrict greenhouse gas emissions.

"You have a train wreck coming. We'd like to avoid it," said Catherine Reheis-Boyd, president of Western States Petroleum Association, the oil industry's main trade association in California.

Through legislation and fiat, California regulators are pushing for the day when petroleum no longer will be necessary to fuel the economy. That won't happen soon. But any corporate executive whose business revolves around extracting, refining or marketing petroleum must be concerned.

Regulators have imposed cap and trade, seeking to use market forces to reduce carbon emissions, and created the low-carbon fuel standard, to force refiners to reduce the carbon footprint of fuel. There are rules to increase the use of hydrogen fuel and electric cars.

As the list grows, industry representatives wonder if they'd be better off agreeing to a direct tax in exchange for getting out from under some of the regulations. Referring to the talk of a federal carbon tax, Reheis-Boyd said a "reasonable carbon fee" probably ought to be "on the table" in California, too.

"Why would you not have a conversation?" she asked.

Under one concept being floated, the state might impose a tax at the pump. A dime per gallon could generate $1.5 billion annually. At 30 cents per gallon, the state could raise $4.5 billion a year, serious money for the environment and transportation.

There are hurdles to any increase, not the least of which is Gov. Jerry Brown, who says he won't agree to new taxes without a vote of the people. Legislators, understanding that it's folly to mess with Californians and their cars, would balk at a direct gasoline tax.

There's always the ballot. Although the industry killed the 2006 initiative, attitudes are shifting.

Voters approved two tax measures last month that will generate $7 billion a year, including one earmarking $500 million a year for five years for energy efficiency projects. My guess is that there will be a carbon-related initiative on the 2014 ballot, and oil companies won't like it.

A recent Public Policy Institute of California poll found that almost two-thirds of likely California voters support taking action right away to combat climate change. No policy advocate in California questions the need to confront climate change, including oil representatives.

The debate focuses on how to wage that fight.

In the coming year, industry will resist what it views as overly costly regulations. That fight will take place in the courts and in the Capitol. On any given bill, oil industry lobbyists can prevail. But overall, the industry is losing.

The oil industry recently issued a report warning that if California proceeds with its many regulations, five to seven of California's 14 refineries could cease production by 2020.

"Many of the remaining refineries in 2020 could become unprofitable if the economic environment worsens, potentially compromising California's security of fuels supply," the study says.

Oil companies, which aren't in business to lose money, might respond by ceasing production or exporting gasoline to other states and countries that lack California's strict requirements. Such steps could lead to "fuels shortages in California with far-reaching consequences," the industry-funded report said.

Gasoline shortages and price spikes grab politicians' attention, as became evident again this fall when Brown was quick to order regulatory changes as pump prices jumped beyond $4.50 a gallon.

A minority of the 120 legislators were in office in 2006 when the Legislature passed AB 32, which requires sharp reduction of greenhouse gases and drives much of the regulation. Although public concern is high about climate change, term-limited legislators aren't bound by past Legislatures' landmarks.

"We have a different economy than we had in 2006," said Assemblywoman Susan Bonilla, a Contra Costa County Democrat whose district includes four refineries. "The Legislature needs more current information."

Although Democrats hold two-thirds majorities in both houses, moderates such as Bonilla increased their numbers in the 2012 election.

Assemblyman Henry T. Perea, the Fresno Democrat who chairs the Assembly moderate caucus, said he'd do away with the low-carbon fuel standard if he could get the votes. He does hope to carry legislation that would modify cap and trade in a manner that would force carbon reductions but might lower costs.

For decades, California's environmental standards have led the nation. The state has forced industry to cut the amount of electricity sucked by televisions, remove many poisons from gasoline, vastly increase mileage of automobiles and much more.

Each time, industry has done its Chicken Little dance, only to comply.

There is no doubt that climate change must be confronted. But the question arises again: Have regulators gone so far that the sky will fall on those of us who use gasoline to get from here to there? Whatever the answer, we ought to plan to pay more, directly or indirectly.

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