A free-market energy blog
Random header image... Refresh for more!

California Energy Policy: Elitist, Import-dependent, and a Tax on the Rest of Us

“Can we really afford to adopt California’s policies, laws and regulations in the rest of America, and then throughout the world? For that matter, how much longer can the once Golden State afford to inflict those policies on its own citizens?”

When George Washington was stricken with malaria and a throat infection in 1799, his physicians used leaches to bleed a quart of blood and remove “morbid matter” from his weakened body. Next they administered laxatives and emetics. A few hours later, Washington died.

This cure worse than the disease finds close parallels in California’s energy and environmental policy. This is the state that leaches energy from its neighbors, and that President Obama and his Environmental Protection Agency often view as their public policy standard bearer. But these energy “physicians” are threatening our nation’s lifeblood.

Governor Jerry Brown has pointed out that 30 million vehicles in California translate into “a lot of oil.” The day when its residents “can get around without using any gasoline” will be “the time for no more oil drilling,” he suggested, adding that offshore oil production has put “hundreds of millions of dollars” into Cal State University and other facilities. Onshore oil production has done likewise.

Energy Importers

That sensible message has not reached the state’s legislators, regulators or environmental activists, however. They strongly oppose any drilling or hydraulic fracturing – and leading state Democrats are campaigning hard for at least a long temporary ban, trotting out long discredited claims that fracking causes groundwater contamination and even earthquakes. To that they have added the even more ludicrous assertion that this half-century-old technology results in birth defects!

Meanwhile, California produces just 38% of its oil needs – and production is falling steadily, as the state ignores its vast onshore and offshore deposits, which are fully accessible via conventional and hydraulic fracturing technologies. Instead, the state imports 12% of its oil from Alaska and another 50% from foreign nations, especially Canada, notes Sacramento area energy consultant Tom Tanton.

Its record on electricity is even worse. California imports about 29% of its total electricity from out of state, getting it from the Palo Verde nuclear power plant in Phoenix, coal-fired generators in the Four Corners area, and hydroelectric dams in the Southwest and Pacific Northwest, Tanton says.

Another 50% of its electricity is generated using natural gas that is also brought in from sources outside California, while the state blockades its own enormous gas potential. Its gas is imported via pipelines from Canada, the Rockies and the American Southwest, to power its gas-fired turbines. Those turbines and out-of-state sources also back up its numerous unreliable, bird-killing wind turbines.

Retiring Nuclear

California has felt secure enough in its hypocrisy to prematurely retire the San Onofre nuclear power plant. Heat exchanger tubes had sprung leaks, because they rubbed against each other due to harmonic oscillation during long periods of peak power.

But instead of simply backing off its power generation to no more than 75 or 80% of peak load, activists and legislators demanded that the plant be shut down – and blamed potential earthquake risks, instead of acknowledging the real reason, Tanton explains.

All this amounts to leaching off its neighbors for 62% of California’s gasoline and 79% of its electricity, letting other states do the heavy lifting and get blamed for emitting greenhouse gases – and then asserting that anti-hydrocarbon regulations have made the state “clean and green.” It’s quite a con job.

Gasoline Woes

These foreign fuels power the state’s profitable Silicon Valley and entertainment industries – as well as the heavily subsidized electric and hybrid vehicles that wealthy drivers love for their exaggerated ecological bragging rights, $7,500 tax credits, and automatic entry into fast-moving HOV lanes.

Meanwhile, California’s poor white, black, Hispanic and other families pay $4.23 per gallon for regular gasoline, the second highest price in America. They also pay 16.2 cents per kWh for residential electricity, double that in most states, and behind only New York, New England, Alaska and Hawaii.

Now the state’s regulators want to apply their costly carbon dioxide cap-and-trade regulations to gasoline and diesel fuels. The rules have already affected large industrial facilities and driven numerous jobs out of the state.

But on January 1, 2015, they will add at least 12 cents more per gallon of gasoline, with the price escalating over the coming years. If there are insufficient “carbon allowances” – or if traders buy large quantities of allowances, and then withhold them from the market – the resultant volatility could cause price spikes of $1 or more per gallon, say experts.

From Cap-and-Trade to Carbon Tax?

One leading Democratic legislator, California State Senator Darrell Steinberg, thus wants to replace the cap-and-trade program with a carbon tax, which he claims will be more transparent and predictable. However, he still wants the price of gasoline to skyrocket. “Higher prices discourage demand,” he says. “If carbon pricing doesn’t sting, we won’t change our habits.”

One wonders what he means by “we.” Poor families will be glad to hear the government ruling elites are carefully weighing choices: hidden taxes versus transparent taxes, while ensuring that their cost of living will soar. It’s akin to offering the choice of having a finger chopped off the right hand, or the left hand.

“Carbon Intensity” Politics

California Save-the-Earth teams are also preparing tough new “low-carbon fuel standards,” requiring that transportation fuels reduce their total “carbon intensity” (CI) or “life-cycle” CO2 emissions by 10% below 2010 levels. This will be accomplished by requiring that refiners and retailers provide more corn-based ethanol, biodiesel and still essentially nonexistent cellulosic biofuel.

This time they want to let the oil companies decide which expensive “qualifying fuel” they will offer consumers. But all of them are much more expensive than even cap-tax-and-trade gasoline – which means poor families will be forced to pay still more to drive their cars and trucks. In fact, the economic forecasting firm Charles River Associates estimates that the LCFS will raise the cost of gasoline and diesel by up to 170% over the next ten years, on top of all the other price hikes.

What’s truly amazing is the smoke and mirrors and doubletalk that the state’s political classes use to calculate carbon intensity for various fuels. As the Wall Street Journal observed, because heavy crude extracted via CO2-intensive “thermally enhanced” techniques is important for jobs in inland areas, California’s Air Resources Board (CARB) arbitrarily gave this “older” oil the same CI score as Alaskan crude, even though an honest scoring system would rank the Alaskan oil four times “cleaner.”

And of course, Canadian oil sands crude gets a much lower score, since environmentalists hate that oil.

If these LCFS standards were applied nationally, Charles River concluded, they would destroy between 2.5 million and 4.5 million American jobs – on top of what Dodd-Frank, EPA and countless other federal regulations have already killed.

In fact, the official national unemployment rate is stuck at 6.7% – but the true rate (counting those who have given up looking) is closer to 9.6% — and the jobless rate is much higher for blacks and Hispanics. On top of that, measured by gross national product, our economy is growing at an abysmal 1.5% or even 1.0% annual rate. $1.8 trillion in annual regulatory costs will do that.

Joblessness

Meanwhile, California’s jobless rate is higher than in all but three other states: 8.1% – and with rates as high as 15% for blacks, Hispanics and inland communities. Commuters who cannot afford the soaring gasoline prices will have little choice but to park their cars and add hours to their daily treks, taking multiple buses to work, school and other activities. This the nation as a whole is supposed to emulate?

Even the CARB admits that the LCFS “does not result in reductions in greenhouse gas emissions on a global scale,” because the more “carbon-intense” fuels will be sold somewhere other than California anyway.

But California wants to corner the market for “advanced” biofuels like soybean diesel when EPA implements a tougher national Renewable Fuel Standard, says the Journal. (Moreover, soy diesel uses an unsustainable 14,000 to 75,000 gallons of water per million Btu of energy created, according to the Department of Energy, compared to just 6 gallons of water per million Btu for oil produced via fracking.)

Climate Alarmism: The Ultimate Rationale

Of course, all these expensive, job-destroying regulations are being concocted and imposed to prevent what Secretary of State John Kerry described as a “weapon of mass destruction” – dangerous manmade climate change.

Extensive evidence – presented convincingly in Climate Change Reconsidered and other reports by the Non-governmental International Panel on Climate Change – strongly suggests that the looming cataclysms exist only in computer models, IPCC “summaries for policy makers,” White House press releases, and pseudo-documentaries like “Years of Living Dangerously.”

Meanwhile, China, India, Brazil, Indonesia, Germany and numerous other countries are burning more coal, driving more cars and emitting vastly more carbon dioxide. So the alleged benefits to global atmospheric CO2 levels and climate change, from California clamping down on fossil fuel use and greenhouse gas emissions, are illusory or fabricated.

Human Ingenuity Still Reigns

When innovators like Harold Hamm and George Mitchell – using what Julian Simon called our “ultimate resource,” our creative intellect – launched the hydraulic fracturing revolution, Holdren, Obama and their army of like-minded arch environmentalists viciously attack the new technologies.

Citigroup’s Energy 2020: North America report may estimate that the United States, Canada and Mexico could make North America almost energy independent in six years, simply by tapping their vast recoverable oil and natural gas reserves. Citigroup, IHS Global Insights and other analysts may conclude that “fracking” technology contributed 2.1 million jobs and $285 billion to the U.S. economy in 2013, while adding $62 billion to local, state and federal treasuries – and slashing America’s oil imports from 60% of its total needs in 2005 to just 28% (and by $100 billion) in 2013.

They may conclude that, by 2035, U.S. oil and natural gas operations could inject over $5 trillion in cumulative capital expenditures into the economy, while contributing $300 billion a year to GDP and generating over $2.5 trillion in cumulative additional government revenues.

A Yale University study may calculate that the drop in natural gas prices (from $8 per thousand cubic feet or million Btu in 2008, and much more on the spot market, to $4.00 or so now) is saving businesses and families over $125 billion a year in heating, electricity, fertilizer and raw material feed stock costs.

Technically recoverable energy resources on federal-government-controlled onshore and offshore lands may total 1,194 billion barrels of oil and 2,150 trillion cubic feet of natural gas, as Institute for Energy Research analyst Daniel Simmons noted in 2013 congressional testimony. At $100 per barrel of oil and $4 per thousand cubic feet of gas, those resources may be worth $128 trillion! Developing them might be able to generate some $150 billion in bonuses, rents and royalties over the next ten years alone – plus billions more in local, state and federal tax revenues, according to the Congressional Budget Office.

The IER might conclude that making more of these areas available for exploration and production would increase America’s GDP by $127 billion annually for the next seven years, and $450 billion annually in the long term – while creating 552,000 jobs annually over the next seven years, with annual wage increases of up to $32 billion, hugely benefitting workers’ and families’ health and welfare.

Conclusion

The path to hell is paved with good intentions – and Alice in Wonderland worldviews, counter-productive policies, arrogantly dismissive attitudes about fellow human beings, and rampant hypocrisy. California, Holdren, Obama and their allies believe they are trendsetters on energy and environmental policies – and that they alone know what is best for us and the world.

Can we really afford to adopt California’s policies, laws and regulations in the rest of America, and then throughout the world? For that matter, how much longer can the once Golden State afford to inflict those policies on its own citizens?  One can only hope for reason over green religion and lower prices over higher prices in the energy state of half-salve, half-free.

_____________

Paul Driessen is senior policy analyst for the Committee For A Constructive Tomorrow and author of Eco-Imperialism: Green power – Black death.

5 comments

1 Wayne Lusvardi { 05.01.14 at 1:49 am }

In a study I recently conducted using the Brookings Institution’s online data tool called Metro Monitor, the top five cities in the U.S. for job growth since the end of the economic recession were:

1. Austin Texas + 47% (oil & gas)
2. Houston Texas + 39% (oil & gas)
3. Dallas-Fort Worth + 51.6% (oil and gas)
4. San Antonio Texas + 51.4% (oil & gas)
5. Oklahoma City OK + 48.6% (oil & gas)

Jobs in the oil and gas sector of the economy were mainly attributed to the growth in each of the above five cities.

Conversely, the top five cities in jobs growth in California by rank since the end of the economic recession were:

8. San Jose-Sunnyvale +31.9% (computer related)
42. San Francisco + 18.6% (computer related)
51. Bakersfield +50.1% (oil & gas)
73. Oxnard-Ventura + 26.6% (tourism)
79. Los Angeles-Orange County + 15.6% (construction)

Interestingly, the oil patch of Bakersfield showed the highest percentage of jobs growth due to the oil and gas industry.

Even more striking is that 5 metropolitan areas in California ranked near the bottom in the U.S. in jobs growth mainly due to declines in oil and gas jobs, manufacturing and agriculture, as follows:

Rank City
91. Sacramento (-99.8% oil & gas) (+6.3% tourism)
92. Fresno (- 100% oil & gas) (+ 7.2% agriculture [before drought])
96. Riverside-San Bernardino (-27.7% manufacturing) (+ 6% tourism)
98. Modesto (-45.2% oil & gas) (+12% trade, transportation)
99. Stockton (-46.2% mining, oil & gas) (+8.6% tourism)

In the Texas oil country, it is oil and gas drilling that is producing the most new jobs. While in California’s inland areas (again excepting Bakersfield), it is the loss of jobs in mining and oil that has resulted in continued economic slow growth.

California policy makers are trying to grow jobs with public works projects under a managed economy (proposed bullet train project, re-engineering the Sacramento Delta for no added water storage capacity, etc). By contrast, Texas and Oklahoma are relying on a market economy mainly in oil and gas drilling to create new jobs.

Ironically, California is sitting on top of one of the potentially largest oil and gas fields in the U.S., the Monterey Formation. Last year, Gov. Jerry Brown signed into law a bill that would allow limited fracking in the state, which should create some jobs in the crucial oil and gas sector.

However, the anti-fracking forces are out in force again this year. The state Senate Committee on Natural Resources and Water just passed State Senate Bill 1132, by Sen. Mark Leno, D-San Francisco. It would place a moratorium on fracking until it is studied more.

The California Chamber of Commerce also just released a list of 26 bills pending in the Legislature that would be “job killers,” including:

SB 1017, the Oil and Gas Severance Tax;
SB 1132, the Regulation of Oil Well Stimulation Techniques, which would significantly limits in-state energy development;
AB 2420, which would allow cities and counties to regulate and issue moratoriums on oil well stimulation techniques. It would significantly limit in-state energy development.
SB 1372, which would increase the corporate tax rate to 15 percent from the current 8.84 percent. It also would increase the tax rate to 50 percent thereafter if the corporation reduces its workforce in the U.S., something guaranteed to force such companies to leave California.

The study can be found by Google search at:

Silicon Valley and Bakersfield Oil Patch Lead CA Jobs Recovery, April 13, 2014, Calwatchdog.com

(sponsored by the Pacific Research Institute, a free market think tank in San Francisco).

2 Tom Tanton { 05.01.14 at 5:43 am }

Another aspect aboout California is the refusal to recognize that not only will their policies result in deminimus reductions, they’ll also most likely result in net INCREASE in global emissions, through economic and environmental leakage. Why? California is very low down on the intensity scale; as we push more and more activity to other states and nations (through high taxes and burdenseom silly-a** policy) with higher intensity, net emissions increase.

Find success? Be punished!

3 Sean { 05.01.14 at 6:49 am }

California’s other problem, extraordinarily generous state pensions, may bring rational thought back to energy development the golden state.

CALSTRS and CALPERS need cash infusions of $5 billion dollars a year from the general fund. The latest temporary tax increases on the wealthy is only generating $7.5 billion in extra revenue in an extraordinary good stock market and the liberal democrats have many pet projects they want to spend that money on. California also owes the Feds nearly $10 billion dollars for money it spent on unmployment benefits. All this had led the state employees unions to search for any source of funding including development of California’s fossils energy wealth and use the funds from oil royalties to help pay for public employee pensions.

California may be a single party spendthrift state but it needs vast amounts of money that can’t run away. It’s oil wealth is a potential big source of that funding and it’s public sector unions wants that cash.

4 Wayne Lusvardi { 05.01.14 at 12:09 pm }

Sean, your comment is way too rational thinking for California.

From a sociological perspectively, what California’s elites seek is countermodernization from industrialization, from the energy grid, from large water reservoirs and hydroelectric plants to a live in a bucolic pre-modern environment where there is no alienation (Marx). This means de-rationalization of not only the means of production and energy but consciousness and ways of thinking.

Here are some other counter forces to the expansion of oil and gas development in California:

1. Rent Seeking – Calpers former external fund manager and billionaire Tom Steyer funds opposition groups to show up at County Board of Supervisors meetings to oppose any new well drilling. Opposition to well drilling was not experienced in the past because it was a mere permit application. But now that California has the California Environmental Quality Act (CEQA) there must be a public hearing. The way the elite pension fund managers are able to get 10% + annual returns on pension funds (that no single investor could get) is by rent seeking and manipulation of stock and hedge fund markets. California is doing what Thomas Pikkety’s book on Capital describes: gaming the markets for financial return without any real increase in economic productivity. But where Pikkety is wrong is that it is not the Koch Brothers or Valero or Chevron gaming the financial system, it is the big pension fund managers in cahoots with government.

2. NIMBYism – California continues to want to place renewable energy plants out of sight and out of mind in the desert while closing functional nuke plant along the coast. The New Knowledge Class of smug postmodern elites want to feel morally superior that they are cleaning up the environment (negligible result as Tanton points out), and don’t feel hypocritical at the double standard of mass killings of birds and insects that birds, bats, and other animal forage on while saving fish larvae from being sucked into coastal power plant cooling inlets.

3. Community Choice Aggregation – CCA’s are old fashioned socialist buying cooperatives that are being formed to takeover the buying of electricity from the established electric utilities (PG&E, Edison, SDG&E). The impetus for them doing so is the 33% Renewable Energy Portfolio Standard of California. They are touting that they can deliver cheaper and cleaner power to Californians and cut out the profit making (another Marxist concept). CCA’s are spreading like wild fire in California. Marin County and San Joaquin Valley already have them operating. San Francisco, Berkeley, Sonoma County and San Diego are in the process of forming CCA’s. One of the main tricks of CCA’s is to buy Renewable Energy Certificates (REC’s) instead of buying electrons. Again this is Thomas Pikkety’s nightmare in real life where paper certificates worth thin air are used as disguised subsidies for green energy projects. A REC only has a market value if it sells for less than what you can buy actual electrons for. It is is priced higher it has no market value — but government mandates they be purchased in lieu of reducing pollution.
I am about to release a pilot study on REC’s being bought by a CCA in California. Stay tuned.

5 Wayne Lusvardi { 05.01.14 at 12:39 pm }

Re: Second to last sentence in my prior comment needs to be corrected:

UNCORRECTED:
It is is priced higher it has no market value — but government mandates they be purchased in lieu of reducing pollution.

CORRECTED:
IF it is priced higher it has no market value — but government mandates they be purchased in lieu of reducing pollution.

Leave a Comment