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Vinod Khosla Headshot

Big Oil's Big Profits, and the Big Lies They're Telling to Maintain Them

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I've issued a challenge to any large organization or corporation that will commit to selling alternative fuels like ethanol. I will supply all the ethanol they need for the long term with a five- to seven-year fixed-price contract that, allowing for normal profit margins, will make it possible for them to sell it for $1.99 a gallon all across America. Going further, I can guarantee that the ethanol will be produced in a way that has a materially positive energy balance and reduces both petroleum consumption and green house gases.

I was on a panel at the Fortune Brainstorm in Aspen this week with Jeroen van der Veer, the CEO of Shell, and offered him this deal. I am waiting for an answer.

We know there are alternatives to oil. But we also know that oil companies are not interested in having these alternatives come to the fore. Instead they continue to put up all sorts of roadblocks and excuses while propagating myths about alternative energy sources.

A group of us are backing a ballot initiative in California -- the California Clean Alternative Energy Initiative -- that would charge oil companies an extraction fee for the oil they take from California, the nation's third largest oil-producing state. This would generate $4 billion in ten years, which would be used to reduce our petroleum usage by 25% and to fund research in our universities on clean technologies. The goal of the initiative is simple: cleaner, cheaper, and more reliable energy and fuels.

Predictably, the oil companies are playing fast and loose in taking on the initiative, claiming that these extraction fees are a new and unfair form of taxation. But it's not a tax, it's a royalty. A royalty that is paid in all other oil-producing states. This is common practice. When you take a product from a state, you are charged a royalty. When companies take timber from forest lands, they are charged a fee for every board-foot of timber they take. When agri-businesses utilize water, they are charged for every acre-foot of water they use.

But when the oil companies take our oil -- a nonrenewable resource -- they aren't charged a penny. When they pump oil out of federal waters, 12 miles off the California coast, they pay 12 percent to the federal government. But when they do it 11 miles offshore, in California's waters, they pay nothing. Zero. Zip.

How do they get away with this outrage? Mostly by buying influence in Sacramento. For instance, according to their financial statements and disclosures, Chevron has spent $42 million lobbying in the last few years. That kind of money has bought them a lot of friends and influence, and allowed the company to avoid paying extraction fees -- money that is due the people of California.

The oil companies are also spreading disinformation about alternative energy sources. For instance, they claim there's not enough capacity out there and not enough ethanol. But, the fact is, there is. I'm happy to supply them any quantity they need, including quantities equal to that of all U.S. production, at fixed prices for seven years, if they'll just commit to buying that quantity for seven years and use it to replace gasoline.

I even made the following offer to Chevron: If you'll distribute ethanol at 10% of your stations, I will no long support the Clean Alternative Energy Initiative. And they refused. They have no interest in alternatives. Last year, three major oil companies made $80 billion -- more than any company has made in the history of mankind. And if you're making that kind of money, you don't want things to change, and will spend exorbitant amounts of money on advertising and lobbying to preserve the status quo. Even if it means spreading lies.

It's kind of like the tobacco companies that for years claimed that smoking doesn't cause cancer. The oil interests are willing to publish any myth, and put any amount of money behind anyone who will support their untenable position.

Ethanol is not the only answer. Hybrids will reduce petroleum use. Flex-fuel hybrids are even better. Flex-fuel plug-in hybrids will go even further! Others are working on butanol. Light-weighting cars and improving engine efficiency and mileage also reducing petroleum use. This initiative is technology-neutral and will support any new and innovative way to reduce petroleum consumption as long as it is cost-effective. To find out more, go to yesoncleanenergy.com.