Californians weigh a new tax on oil companies

Each side has amassed a campaign war chest of more than $25 million. A California Field Poll conducted in July found Prop. 87 is favored 52 percent to 31 percent, with 17 percent undecided. But only 19 percent of respondents knew anything about the measure. "We think that when voters get a closer look at the claims of this, they will reject it," says Mr. Lundeen.

In the past, taxing oil companies to get them to supply clean fuels has not worked, some observers say, citing failed efforts by the federal government in the late '70s and by California's Prop. 11 in 1980.

"We have seen this movie before, so one has to question if it didn't work before why would it work now?" says John Felmy of the American Petroleum Institute. "This is something we are watching very carefully ... we are concerned about it, but we are ultimately wondering, how will consumers think it helps them?"

Others have a different view, saying economic conditions now are more favorable to bringing alternative fuels to market.

"Providing incentives for alternatives didn't work for a variety of reasons in the '70s, among them that the price of gas went back to reasonable levels and people lost the momentum, interest, and the will to continue them," says Nabil Nasr, director of the Center for Integrated Manufacturing Studies at the Rochester Institute of Technology in New York. "Now, with the prospect of higher [oil] prices for the foreseeable future, things may be different."

But is it possible, really, to prevent oil companies from passing on to consumers the added tax, as the initiative proposes? Proponents of Prop. 87 say yes, citing the state attorney general's comments that it would be possible. Some economists, meanwhile, say the price at the pump is likely to rise for reasons beyond Prop. 87.

"You cannot legislate away the laws of economics any more than you legislate away the laws of gravity," says Benjamin Powell, director of the Center on Entrepreneurial Innovation at the Independent Institute, a California-based think tank. A tax on oil production, he says, will result in less drilling activity, making California oil more scarce and leading refineries here to import oil from elsewhere. Added dependence on costlier foreign oil – often because of added transportation or refining costs – is inevitable, he says.

Another hurdle for Prop. 87, say analysts, is voter confusion. Several state initiatives have failed during the past 10 years because voters did not understand their implications. In November, Californians will also decide whether to OK a $60 billion bond measure to improve infrastructure, and that measure could affect their decision on Prop. 87.

"This is a complicated measure with a lot of moving parts: creation of an independent board, severance tax on oil, money to provide incentives" for fuel alternatives, says John Matsusaka of the Initiative & Referendum Institute at the University of Southern California in Los Angeles. "I don't dismiss the possibility that the measure could have an effect, but the voters should not be asked to commit all that money on faith. Proponents have to come up with some reliable evidence."

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