Can oil extraction tax get a fair hearing?

by Brian Leubitz

When you ask California voters about things that we can do about the California budget, one of the more popular items that is usually floated is an oil extraction tax. California is the only major energy producing state without a tax, and it just makes zero sense.

Yet when it comes down to brass tacks and ballot boxes, hordes of oil cash usually swoops in to kill the measure. But Senators Noreen Evans (D-Santa Rosa) and Mark Leno (D-San Francisco) are looking to bring the topic back.

“California is the largest — and only — oil producing state in the nation that does not tax its vast oil resources,” said Evans in a written statement.

The proposal, a 9.9 percent tax on oil drilled both on land and off the California coast, could generate some $2 billion a year in new state revenue (depending, of course, on the price of a barrel of oil and on in-state oil production).  SB 241 says the money would be earmarked for all three branches of higher education — the University of California, the California State University, and community colleges — as well as state parks.  Most of the money (93 percent, according to the legislative authors) would go to higher ed. (News10)

If you look back to the Prop 87 campaign half a decade ago or so, what you see is that the oil companies try to scare voters into thinking that somehow all of this will fall back down upon the consumer. Yet, in reality, sheer economics says that simply cannot be.

Evans points out in her statement a RAND study that shows this is not the case. Further, the sheer economics of the matter is rather straight forward:

1) Oil is taken out of the ground. It is taxed at this point.

2) Oil is sold on the world market.

3) Oil is processed for fuel or other uses.

See part two of that little scenario, it is sold in the context of a global market. That is the way it has to be, there really isn’t a localized market, because oil can move around. It isn’t necessarily the easiest thing (see: Keystone XL), but it can move around. And to pretend that somehow all of the cost of an oil extraction tax would fall down upon California defies basic logic and all economic science.

The bill would dedicate the money to higher education, a laudable goal if ever there was one. As I have mentioned a few times here, my education at the University of Texas was largely underwritten by oil severance taxes. If the oil companies are taking from the ground, from our future, a small tax seems pretty reasonable.

Surely there will be resistance, there always is, but maybe this bill, SB 241, can move the ball down the court further than we have in the past.