November Ballot Initiative Would Tax Oil and Fund Renewables

Date: 27 Jun 2006 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

After supporters gathered more than 1.1 million signatures, California voters will see an interesting measure on the November 7, 2006, ballot. The “Clean Alternative Energy Act Initiative” would assess a 1.5-6.0 percent tax on oil companies operating in California to fund alternative fuels and renewable energy development.

The initiative will fund a nearly $4 billion effort ($200 – $380 million/yr for 10 years) from the imposition of a severance tax on oil production, to be used to fund a variety of new alternative energy programs. to reduce California’s dependence on gasoline and diesel by 25 percent over the next 10 years by making alternative fuel vehicles and alternative fuels more widely affordable and accessible to consumers. The program will be funded by an assessment on the extraction of oil in California, paid for by oil companies that drill in California. The assessment is based on a sliding scale, based on the price per barrel of California crude oil at the wellhead. If the Initiative were enacted now, the assessment would be 4.5 percent, based on the current closing price of California oil ($58.00 per barrel, as of Friday, June 16).

California is the 3rd largest oil-producing state in the nation, yet is the only major oil-producing state without a comparable resource depletion assessment to reimburse Californians for the use of their natural resources. Oil companies pay similar assessments in every other major oil-producing state, including Alaska (15 percent), Texas (4.6 percent), Louisiana (12.5 percent) and New Mexico (3.8 percent).

According to the California Legislative Analyst’s Office, the proposal would work as follows:

Beginning in January 2007, the measure would impose a severance tax on oil production in California. (The term severance tax is commonly used to describe a tax on the production of any mineral or product taken from the ground, including oil.) The measure defines “producers” who are required to pay the tax, broadly to include any person who extracts oil from the ground or water, owns or manages an oil well, or owns a royalty interest in oil. The severance tax would not apply to oil production on state lands (which includes offshore production within three miles of the coast) and would not apply to federal production (offshore production beyond three miles from the coast and production on federal lands in the state). Additionally, the severance tax would not apply to oil wells that produce less than ten barrels of oil per day (“stripper wells”), unless the price of oil at the well head was above $50 per barrel. At current levels of production, the tax would apply to about 165 million barrels of oil produced in the state annually.

The measure states that the tax would be “applied to all portions of the gross value of each barrel of oil severed as follows:”

  • 1.5 percent of the gross value of oil from $10 to $25 per barrel.
  • 3.0 percent of the gross value of oil from $25.01 to $40 per barrel.
  • 4.5 percent of the gross value of oil from $40.01 to $60 per barrel.
  • 6.0 percent of the gross value of oil above $60.01 per barrel and above.

The text of the proposal contains the following funding breakdown:

  • Gasoline and Diesel Use Reduction Account (57.50 percent – for market-based incentives (consumer loans, grants, and subsidies) for the purchase of alternative fuel vehicles, incentives for producers to supply alternative fuels, incentives for the production of alternative fuel infrastructure (for example, fueling stations), and grants and loans for private research into alternative fuels and alternative fuel vehicles.
  • Research and Innovation Acceleration Account (26.75 percent) – for grants to California universities to improve the economic viability and accelerate the commercialization of renewable energy technologies and energy efficiency technologies.
  • Commercialization Acceleration Account (9.75 percent) – for incentives to fund the start-up costs and accelerate the production of petroleum reduction, renewable energy, energy efficiency, and alternative fuel technologies.
  • Public Education and Administration Account (3.50 percent) – for public education campaigns, oil market monitoring, and general administration. Of the 3.5 percent, at least 28.5 percent must be spent for public education, leaving a maximum of 71.5 percent of the 3.5 percent (or roughly 2.5 percent of total revenues) for the Authority’s administrative costs.
  • Vocational Training Account (2.50 percent) – for job training at community colleges to train students to work with new alternative energy technologies.


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John Farrell

John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.