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Vinod Khosla Headshot

The Big Oil Companies Have Been Ripping Californians Off -- And Not Just at the Pump

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You thought you were being ripped off at the pump. You are, but that is only half of the story -- the rip-off goes far beyond that. About a year ago I was approached by a group of scientists, environmentalists and fellow entrepreneurs who had joined together as Californians for Clean Energy, and they told me a startling fact: That while California is the third largest oil-producing state in the country, it is the only state in the country where oil companies currently do not pay a fee for the extraction of oil. Alaska imposes an extraction fee of 9% on each barrel pumped from their lands, Louisiana gets 12.5%, even Texas gets 4.6% but California gets nothing. Bottom line: there is not a major oil producing jurisdiction on this planet that I know of where the oil companies don't pay to reimburse the public for the exploitation of their natural resources. Even Texas is tougher on the big oil companies than California. A few miles offshore in Federal waters off California the most common royalty rates assessed by the federal government on oil produced offshore is 12.5% for oil extracted in water depths greater than 400 meters, and 16.67% for oil extracted in water depths less than 400 meters. In California waters they pay nothing and are complaining about a proposed range of 1.5%-6%!

As I blogged here previously, many of the big oil companies are raising prices at the pump while standing in the way of progress on immediately viable alternative fuels (while pretending through their vast network of slick lobbyists, consultants, ad agencies, PR firms and token investments, to be committed to alternative fuels) to lessen our oil dependence. Enough is enough. I believe the time has come for the oil companies to pay for cleaner energy. Over 1.2 million registered California voters have signed our petition. We are now officially qualified for the November 7 ballot in California and you the voters will get to vote for it! Even though this is a California ballot for registered voters, I do believe if it passes it will start to change the energy picture for the whole country and the planet! The role model that California sets, the technologies its companies develop, the R&D the universities perform, will benefit not just California but everybody everywhere.

Look, I'm a Republican. I'm pro-business, anti-government bureaucracy, and certainly a free marketeer. I'm not a fan of California's initiative process, because I think we're paying legislators to legislate. But when Californians for Clean Energy told me that the California Legislature had tried and failed to pass an oil drilling assessment -- including when Antonio Villaraigosa, currently the Mayor of Los Angles, proposed it when he was Assembly Speaker -- they certainly had my attention. If the money and inside-Sacramento power of the big oil companies is going to allow them to rip Californians off, then certainly we Californians have the right, if not the duty, to join together and stand up for ourselves. But more on how they buy California (and National) politicians in a future blog (yes, post or email me your favorite big oil stories at and I will feature them here).

So I'm helping to back Proposition 87, the California Clean Energy Act. Prop. 87 will impose an assessment on California oil drillers for the purpose of a ten-year program to reduce gasoline and diesel consumption in California. This is not a bond initiative, and causes no new debt to the state. Prop. 87 pays it's own way, then sunsets. It is a limited , one time extraction fee (yes we probably should have made it permanent and higher!) when the oil companies deplete our limited supply of oil. They pay in effect a small royalty fee to the state based on the profitability of the oil that they extract. If the farmers are paying for every acre-foot of California water they take and the foresters pay for every board foot of timber they harvest from California forests then why shouldn't the oil companies pay for every barrel of oil they take?

It doesn't create any new bureaucracy, but instead reinvigorates an under-performing state agency that was originally created in 1980 to further in-state alternative fuel development. To me, fixing a broken state agency is exactly what responsible citizenry should do.

The best thing about Prop. 87 is the innovative way it goes about kick-starting the alternatives to petroleum using market incentives for consumers on the demand side coupled with incentives for industry on the supply side. As a free marketer I will blog later on why the playing field that oil controls is not a fair playing field for alternatives to oil and why we need this initiative. More on that later. In the meantime, check out, contribute generously, help us raise funds, organize local town hall style meetings (, and send us facts and figures that will help our campaign! YES ON PROP. 87 on November 7.