PROP. 87 CONTAINS SOME FATAL FLAWS.

Byline: THOMAS TANTON

AMERICANS are demanding that something be done about near-record gasoline prices, the looming threat of ongoing high prices and our vulnerability to imported oil. Unfortunately, many of the ideas on the table -- particularly Proposition 87 in California -- would likely do more harm than good.

Proposition 87 proposes a $4 billion tax on California oil production to fund alternative fuels for transportation.

The initiative seeks to cut the state's petroleum use by 25 percent by 2017 and by an additional 25 percent every 10 years until ``petroleum use in California is negligible.''

If enacted, the measure would generate as much as $380 million a year and remain in effect until it raised $4 billion.

But there are at least three fatal flaws in the logic behind the proposal.

First, Proposition 87 would create yet another layer of bureaucracy with no accountability and with inappropriate performance metrics. This new state bureaucracy would be run by political appointees with power to hire unlimited staff and spend $4 billion in tax dollars outside the state budget-review process, absent the checks and balances that govern other agencies.

This bureaucracy would primarily be concerned with self-preservation, not the advancement of alternative fuels.

The new bureaucracy would also be authorized to collect additional taxes year after year after year, with no regard to actual progress in advancing alternative energy use or reducing petroleum use. To save their jobs, the bureaucrats would need to demonstrate that alternative fuel practicality is ``just around the corner.''

Thus any possible solution would always be in need of additional research and development, regardless of its technological maturity, and could never quite make it to market.

The second fatal flaw is that an additional tax on oil translates into higher production costs and lower profits for California's oil producers. The price of oil is determined by the world market. A further increase in production costs translates to lower production amounts in California and to increased imports -- precisely what the initiative aims to undo.

Because gasoline consumption is fairly constant, this price cap would likely result in gasoline shortages, which occurred during every prior price-control attempt.

Elizabeth Hill, the state legislative analyst, points out that the severance tax could see reduced revenues from property taxes, income taxes and gasoline taxes.

Hill says that the severance tax ``could result in a reduction in economic activity reflected ... in a reduction in jobs.''

That's one way to reduce gasoline consumption.

The third fatal flaw is that to meet projected U.S. energy-demand growth of 34 percent in the next two decades, U.S. oil and gas companies have invested $98 billion from 2000 through 2005 on emerging energy technologies in the North American market.

Of this amount, $11 billion was invested in advanced end-use technologies and for advanced-technology vehicles.

Other significant emerging-technology investments were made by the auto industry, agricultural industry, electric utilities, renewable-fuel industry and the federal government.

In a five-year-period, these interests invested $32 billion -- $20 billion of that associated with end-use technologies and $12 billion with alternative fuels.

The billions of dollars spent each year have already increased the amount of alternative fuels available to California.

Proposition 87 would undo that progress and increase imports of petroleum.

That's certainly not what Californians need or want.