Why California should have an oil severance tax....

Today's post: Wednesday, 5-11-2010

We need an 80% reduction in fossil fuel use by 2050 to avoid the worst global warming effects. And, practically speaking, we need to also double our electricity generation and double the useful work done per unit of electricity & other energy sources as well during that same time to have a decent economy.

At some point, the oil that we’ve been using to power much of our economy will begin to run low enough that our world economy will shrink due to lack of supply or excessive costs or both. Kuwaiti scientists recently predicted peak oil in 2014 – just 3 years from now.

And, once the demand for oil picks up again with the apparent economic recovery or supply begins to plateau or drop, the prices will again go back up. That will cause more hard times economically unless we have enough alternative sources of energy to turn to.

Today’s post:

Why California should have an oil severance tax....

There are three reasons for this.

1. The most important reason is that in the current weakened economy, the State of California is planning to cut virtually every area of education spending.

Despite the fact that public education needs many other improvements besides more money, many parts of education do support both economic growth and a continuation of the economy we already have. And, severe cuts will make it work even less well than it has been.

Without adequate funding for education, more people will enter the workforce unable to read well enough or do a minimum of calculation to be employable for most jobs.

Without adequate funding for education, fewer people will get training at our community colleges for jobs that need those trained people.

Without adequate funding for education past high school, we will run short of people able to do many kinds of specialized work.

Clearly, if the money is short enough, this must be done. But it is extremely bad public policy. It will make California’s economy worse!

But California is the only oil producing state without a severance tax on oil. Even oil states such as Texas and Oklahoma have them. And, a comparable severance tax to theirs in California would make these added cuts to education unnecessary.

2. For the reasons we keep posting about, we need to begin to charge the oil companies for the true costs associated with using oil.

To avoid dramatic problems with price increases for oil caused by less of the cheap to extract sources and more energy demand by growing economies and populations, we need badly to begin to switch to other forms of energy to power transport. If oil begins to be charged for its consequences and to cost somewhat more in the short run, the alternatives will become economically competitive sooner.

To avoid making climate change worse, we need to use less burning of fossil fuels for energy. For this reason also, if oil begins to be charged for its consequences and to cost somewhat more in the short run, the alternatives will become economically competitive sooner.

A severance tax is one way to do this.

3. Many parts of California need somewhat more refined gasoline to avoid bad air pollution and many parts do better economically than many places in the United States. In those parts of the state, people pay more for gasoline since they can afford to do so.

So, gasoline costs more in California than elsewhere.

Meanwhile in those states where people pay less for gasoline, they get part of the money they spend back in taxes.

In California, we pay more for gasoline and get no money back. This is unfair and should be changed in my opinion.