Friday, November 03, 2006

Sausage, Laws and Prop 87

This Tuesday, November 7, Californians face a dizzying array of state and local bond proposals, initiatives and propositions. I am among those who generally believe that the California initiative process is broken, and should be reformed with higher signature hurdles, more funding transparency and greater legislative input both before and after the popular vote. Direct democracy is difficult enough for the 80-odd residents of a New England fishing island gathered in the town chapel. Thirty-three million gathering over optical scanning machines will always be imperfect.

But occasionally there is a proposition that is sufficiently fair-minded and which carries enough promise for real progress on an important issue that I get excited to vote for it. Prop 87, "Alternative energy. Research, production, incentives. Tax on California oil producers," is such a proposition (The Attorney General might consider a tag-based naming system going forward, but that's a different blog post.)

Prop 87 is pretty simple. It charges companies a fee to extract oil from the ground in California, and it uses the funds generated to support alternative energy research in California. Whether these two ideas make sense should be judged independently. If you believe they do, I would recommend supporting 87.

To me, part one is a no-brainer. Every single other oil-producing U.S. state charges companies an extraction fee. California does not. For me, case closed. I was shocked to see the editorials in the SF Chronicle and the LA Times both use twisted logic to play down this point. They argue that since sales and income taxes are higher in California than other states, oil companies are already paying for the right to do business here. Great. By that argument, let's please eliminate the Golden Gate Bridge toll and make parking in San Francisco free. It is so hard to imagine this stilted argument occurring simultaneously in two editorial board rooms, that I end up imagining the newspapers cutting-and-pasting from the Anti-87 brief book. Yes, taxes in California are relatively high to support a broad swath of infrastructure and social programs that have helped make the state the most vibrant and innovative economy in the world. It's hardly a reason to give oil companies a free pass relative to other California businesses and relative to the business standards in other states.

So on to the use of these funds. Is alternative energy research the highest and best use for up to $400 million in new government funds annually? I can respect a lot of arguments which may say no. But there is certainly a nice symmetry and significant upside to investing the funds this way. The hundreds of billions of dollars of value unleashed by the Internet would never have been possible without the hundreds of millions in basic research invested by the government in ARPANET. Today the multi-trillion dollar global energy market faces the need for tremendous innovation if the challenges of developing nation industrialization and urbanization, global warming, U.S. national energy security and finite resources are to be overcome. Government has always had a role to play in funding the basic research related to society's biggest challenges. Energy innovation should be no exception, and the regions which drive this research will benefit disproportionately for generations.

Prop 87 is not perfect. No initiative is. I know some smart people who plan to vote against it simply because the initiative process is so arcane. The process that led to Prop 87 is as ugly as the creation of any law. But it's goals are sufficiently laudable and its implementation sufficiently well thought-through that am actively looking forward to its passage. I cannot be any more eloquent on this point than President Clinton, so I won't try:

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