Big Oil wins in California
Voters reject proposal to tax production, funnel estimated $4 billion into alternatives or other means to reduce consumption.
NEW YORK (CNNMoney.com) -- Californians, long the trendsetters in the nation's environmental laws, on Tuesday rejected a proposition that would have taxed oil companies and used the money to fund renewable energy.
Early returns indicated the initiative was failing by about a 4-to-3 margin.
Known as Proposition 87 the law would have levied a tax of 1.5 to 6 percent on every barrel of oil pumped in the state, depending on the price of crude.
The goal was to create a fund of $4 billion over the next 10 years that would be used to fund alternative energy sources and reduce the state's consumption of oil by 25 percent.
"We can't afford to wait for Washington to get their act together," said Yusef Robb, spokesman for Yes On 87, prior to the vote. "I don't want to sit around breathing air that is going to shorten my life while sending dollars to the Middle East."
But the law's opponents, financed by the big oil producers in the state including Chevron and a consortium run by Exxon Mobil (Charts) and Royal Dutch Shell (Charts), said it would do little more than create a $4 billion bureaucracy in state government while simultaneously raising fuel prices.
They also said schools and public safety would suffer as the value of oil in the ground, currently assessed under property taxes, would be less due to the tax.
"One thing not suffering for lack of money is alternative energy," said Scott Macdonald, a spokesman for No On 87, prior to the vote. "It going to drive up our fuel prices because its a tax on production, not profits."
California was in a unique position. It is the only oil producing state in the nation to not have a production tax, although some other states with one offset it by doing away with a corporate income tax.
Still, the idea of raising taxes on oil producers in some capacity to fund alternative energy may be tried in other states.
"That would be the biggest fear (for investors)," said Neal Dingmann, an energy analyst at Pritchard Capital Partners in Houston.
Dingmann said he wasn't too concerned about the proposal in the short term, but did question the logic of taxing producers, saying it might be more efficient to tax consumers and let the high gasoline prices spur private sector innovation.
"Much like the consumer, the producer is going to gravitate to the highest return on investment as well," he said.