Oil industry is driving force behind Proposition 23…

by Michael Hiltzik , Los Angeles Times

If a ballot initiative is known by the company it keeps, we should be just a teeny bit suspicious of Proposition 23, the Nov. 2 measure designed to eviscerate California’s new greenhouse gas regulation.

The driving force behind the initiative is the oil industry, which has contributed more than $2.3 million to getting it passed. The biggest single contributor is San Antonio-based Valero Energy ($1.05 million, according to the latest state campaign disclosures), with San Antonio-based Tesoro Corp. in second place with $525,000.

Other oil firms bring up the rear, including California’s own Occidental Petroleum ($300,000). Then there’s the mysterious Adam Smith Foundation of Missouri, which put up $498,000. This outfit raised all of $5,162.40 in 2009 and ended that year with $109 to its name (according to its federal tax return ). I’d love to know who’s using the group as a front, but it hasn’t been answering its phone.

Before we get into what this cash has bought, a few words about Proposition 23 and the measure it attacks, which is known as AB 32.

Passed in 2006, AB 32 is California’s attempt to move into the forefront of green policy, improving our air quality while encouraging the growth of profitable green industries.

AB 32 requires state officials to establish a statewide cap on emissions of greenhouse gases ‘ principally carbon dioxide, a major contributor to climate change and smog. A few years ago, the California Air Resources Board set that limit, to be reached in 2020, at 427 million metric tons of carbon dioxide equivalent (a common environmental metric). That’s the level emitted statewide in 1990. That will require a reduction of about 15% from today’s emissions, the board says.

By Jan. 1, the board must establish mechanisms for overall reductions, such as cap-and-trade rules, which essentially allocate emission levels to companies but allow them to buy credits from those not using up their own rights. Full implementation of all rules is required by Jan. 1, 2012. Pollution standards already adopted for new cars aim to cut emissions 30% in 2016.

As you might imagine, the leading source of greenhouse gases is the burning of petroleum, especially motor fuel, which is why the oil industry views itself as AB 32′s big target.

The industry has tried to cast Proposition 23 as a jobs measure. Its campaign is centered around projections of alarming job and economic losses if AB 23 goes into effect ‘ "over a million lost jobs and staggeringly higher prices," it says. The initiative’s backers say they merely wish to impose a "common-sense, temporary" postponement of AB 32 until the state’s unemployment rate, currently about 12.4%, falls to 5.5% for four consecutive quarters. Just a smidgen of a tweak, you might think.

Yet the state’s monthly unemployment rate hasn’t been 5.5% or less since September 2007. Prior to April 2005 it was 5.6% or higher for 44 consecutive months. In other words, the rate has been 5.5% or less for only 37 of the 114 months since January 2001.

UCLA forecasters believe the rate got as low as 4.8% (in 2006) largely because the housing boom, which probably won’t be repeated anytime soon, put 900,000 people to work in construction. California’s natural unemployment rate in the future may be about 6%, Jerry Nickelsburg of the UCLA Anderson Forecast told me.

So when the Proposition 23 gang says they’re only "adjusting the timetable" of AB 32, don’t believe a word of it. They want to kill this law, forever.

The core economic study used by the proposition’s supporters was drafted by two Cal State Sacramento business professors, Sanjay B. Varshney and Dennis H. Tootelian, working on a contract from the California Small Business Roundtable.

They accepted the Air Resources Board’s initial estimate that implementing AB 32 would involve costs of nearly $25 billion a year as a minimum. They threw in additional capital costs of $60 billion, $5 billion for new-home construction (for energy-thrifty homes), $36 billion for fuel-efficient new cars and more.

Unfortunately, as numerous critics have observed, there are lots of problems with these numbers. The nonpartisan Legislative Analyst’s Office points out that the study failed to mention that the board had also identified $40 billion in savings from AB 32 ‘ for a net gain of about $15 billion a year. Varshney and Tootelian said they deliberately ignored these savings as "too speculative to consider at this time," a neat trick, especially if you’re trying to reach a preordained conclusion.

James Sweeney, an energy economist at Stanford, notes that in calculating the additional housing cost per consumer, the professors estimated that AB 32 would add $50,000 to the cost of a new home. How so? They figured that was an increase of 14.9% over the median new-home cost in 2008, and applied it to every household in the state ‘ whether new-home buyers or not. They didn’t factor in any savings in power costs.

"There’s nothing subtle about what’s wrong with that paper," Sweeney told me. "It’s such a hit piece that everybody I know in the community that looks at these things has just disregarded it."

More objective studies, even those foreseeing net costs from AB 32, find that these are not likely to be significant. The Legislative Analyst’s Office, which concluded that the near-term effect would be negative and the longer-term effect "unknown," states that either way the effect "will probably be modest in comparison to the overall size of the state’s economy."

But it might be significant for the oil industry, which could explain why Valero and Tesoro have donned the mantle of protector of the working man.

Most of the pessimistic estimates of AB 32 costs assume that California will be alone on the cutting edge of green policy, so businesses might flee to more pollution-friendly states. But it may turn out that our standards will become national benchmarks: Indeed, the federal government already has adopted California’s new auto emissions standard.

Moreover, building the state’s green jobs sector, as AB 32 will do, is a stated goal of most of our political candidates. Meg Whitman wants to hand out millions in tax incentives for green jobs, so Proposition 23 puts her in an awkward position. She has tried to finesse the issue by not endorsing the measure, advocating instead a one-year moratorium on implementing the law.

Of course, it’s possible that I’m unfairly ascribing nefarious motives to truly public-spirited researchers and companies. Here’s the record. Varshney and Tootelian didn’t return my calls. Tesoro didn’t return my call.

I reached a spokesman for Valero, who said that with 1,600 employees in California it wanted to ensure that the state’s economy stays strong. When I asked him what made the company think it wouldn’t, he referred me to the Proposition 23 campaign, which was a transparent way of dodging the question.

But that’s what we’ve come to expect from these corporate-sponsored "people’s initiatives." Whether the sponsor is Pacific Gas & Electric, Mercury Insurance or the oil industry, the goal is the same: Pretend you’re protecting citizen democracy, but do it for your own pocketbook.