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Prop 87 Post Mortem

Well, I was wrong. I have consistently predicted that California’s Proposition 87 would pass. I knew that support had been slipping as gas prices have fallen, but I still thought that when the time came to vote, the voters would choose to punish the oil companies. But Prop 87 looks to be headed toward a sound defeat tonight.

What Went Wrong

I can point to numerous things that went wrong with the “Yes” campaign. While I really was pretty ambivalent about the initiative, I was not ambivalent about the tactics that the “Yes” campaign utilized. Several months ago I commented to a person that was associated with the Yes campaign that it almost seemed like they were running a parody of a political campaign. They displayed a stunning level of naivety over energy issues and energy policy.

The L.A. times characterized this initiative as “deceptively marketed”, which was also the title I chose for my first Venture Beat article on the initiative. The California papers almost unanimously opposed the proposition. So, the Big Oil hate-mongering from the Yes camp rang a bit hollow when all the newspapers were editorializing against it. Were they all in the camp of Big Oil? Were Vinod Khosla’s hometown papers, all of which endorsed a no position, in the camp of Big Oil?

I found it very difficult to read Vinod Khosla’s essays in favor of Prop 87. I felt like most of it was very condescending drivel, more appropriate for a grade school audience. He would have been taken a lot more seriously had he stuck with the facts, and avoided all of the emotional pleas to punish oil companies. Clearly, he hates the oil companies. We got it. But as he continued to write, I was just waiting for him to claim that refinery boilers are fueled with homeless children.

There were also a number of times that the Yes campaign demonstrated that they didn’t even know what was in the initiative. An example of this was reported last week at the No on 87 website:

KGO-AM’s Ronn Owens hosted a spirited debate over Proposition 87 (the $4 Billion Oil Tax Initiative) in San Francisco today.

I went up against Beth Willon, who represented the Yes on 87 campaign.

At one point Willon tried to make the argument that Prop. 87 “will only last 10 years.”

I responded by pulling out the actual initiative text and reading Section 26029.4 which states “the authority may be terminated at any time by the Legislature no sooner than January 1, 2027 or after the assets of the authority have been fully expended, whichever is later.”

Beth’s only response was that I was reading “very deep” in the initiative text. Somehow I think the “deep” parts count too.

It would be funny if it weren’t such a serious subject. The proponents also frequently characterized this as an excess profits tax, when it was actually a severance tax. The difference is that even when oil companies are in a down cycle and profits are much lower (or nonexistent), they get to keep paying the severance tax.

But I think the thing that really persuaded people to vote “no” was the uncertainty of the impact on gas prices. I was with the vast majority of economists in my belief that this proposition would drive up gas prices. But the overall amount was uncertain. The initiative would have impacted the supply/demand balance in California, with uncertain results.

I am certain I could have come up with a better proposition to promote alternative energy. I believe the voters would have supported a nickel a gallon gas tax increase with the proceeds going to fund alternative energy. That way, the price increase would have been known. In fact, since higher gas prices correlate with lower demand, a nickel gas tax increase might not have caused gas prices to increase by a nickel. And I don’t think the oil companies would have come out so strongly in opposition. And when you run a campaign that essentially paints the opposition as being responsible for all of society’s ills, you better make sure your nose is clean. In this case, Mr. Khosla’s engaged in quite a bit of hypocrisy, and that was used effectively against him.

I don’t doubt some new version of Prop 87 will be resurrected in the future. If any of you proponents are going to try this again, feel free to send me an early draft of the initiative and I would be glad to critique it for you. But get someone else to run your campaign the next time around.

Note: I am going to be out of town for the next few days with no access to the Internet, but I did want to offer up my thoughts on the election as soon as the results were clear.

November 8, 2006 Posted by | California, Prop 87, Vinod Khosla | 14 Comments

Prop 87 Post Mortem

Well, I was wrong. I have consistently predicted that California’s Proposition 87 would pass. I knew that support had been slipping as gas prices have fallen, but I still thought that when the time came to vote, the voters would choose to punish the oil companies. But Prop 87 looks to be headed toward a sound defeat tonight.

What Went Wrong

I can point to numerous things that went wrong with the “Yes” campaign. While I really was pretty ambivalent about the initiative, I was not ambivalent about the tactics that the “Yes” campaign utilized. Several months ago I commented to a person that was associated with the Yes campaign that it almost seemed like they were running a parody of a political campaign. They displayed a stunning level of naivety over energy issues and energy policy.

The L.A. times characterized this initiative as “deceptively marketed”, which was also the title I chose for my first Venture Beat article on the initiative. The California papers almost unanimously opposed the proposition. So, the Big Oil hate-mongering from the Yes camp rang a bit hollow when all the newspapers were editorializing against it. Were they all in the camp of Big Oil? Were Vinod Khosla’s hometown papers, all of which endorsed a no position, in the camp of Big Oil?

I found it very difficult to read Vinod Khosla’s essays in favor of Prop 87. I felt like most of it was very condescending drivel, more appropriate for a grade school audience. He would have been taken a lot more seriously had he stuck with the facts, and avoided all of the emotional pleas to punish oil companies. Clearly, he hates the oil companies. We got it. But as he continued to write, I was just waiting for him to claim that refinery boilers are fueled with homeless children.

There were also a number of times that the Yes campaign demonstrated that they didn’t even know what was in the initiative. An example of this was reported last week at the No on 87 website:

KGO-AM’s Ronn Owens hosted a spirited debate over Proposition 87 (the $4 Billion Oil Tax Initiative) in San Francisco today.

I went up against Beth Willon, who represented the Yes on 87 campaign.

At one point Willon tried to make the argument that Prop. 87 “will only last 10 years.”

I responded by pulling out the actual initiative text and reading Section 26029.4 which states “the authority may be terminated at any time by the Legislature no sooner than January 1, 2027 or after the assets of the authority have been fully expended, whichever is later.”

Beth’s only response was that I was reading “very deep” in the initiative text. Somehow I think the “deep” parts count too.

It would be funny if it weren’t such a serious subject. The proponents also frequently characterized this as an excess profits tax, when it was actually a severance tax. The difference is that even when oil companies are in a down cycle and profits are much lower (or nonexistent), they get to keep paying the severance tax.

But I think the thing that really persuaded people to vote “no” was the uncertainty of the impact on gas prices. I was with the vast majority of economists in my belief that this proposition would drive up gas prices. But the overall amount was uncertain. The initiative would have impacted the supply/demand balance in California, with uncertain results.

I am certain I could have come up with a better proposition to promote alternative energy. I believe the voters would have supported a nickel a gallon gas tax increase with the proceeds going to fund alternative energy. That way, the price increase would have been known. In fact, since higher gas prices correlate with lower demand, a nickel gas tax increase might not have caused gas prices to increase by a nickel. And I don’t think the oil companies would have come out so strongly in opposition. And when you run a campaign that essentially paints the opposition as being responsible for all of society’s ills, you better make sure your nose is clean. In this case, Mr. Khosla’s engaged in quite a bit of hypocrisy, and that was used effectively against him.

I don’t doubt some new version of Prop 87 will be resurrected in the future. If any of you proponents are going to try this again, feel free to send me an early draft of the initiative and I would be glad to critique it for you. But get someone else to run your campaign the next time around.

Note: I am going to be out of town for the next few days with no access to the Internet, but I did want to offer up my thoughts on the election as soon as the results were clear.

November 8, 2006 Posted by | California, Prop 87, Vinod Khosla | 7 Comments

People in Glass Houses

VentureBeat, a Silicon Valley-based site that focuses largely on venture capital (and venture capitalists), has been hosting a series of essays on California’s Proposition 87, which will be voted on next Tuesday. The owner of Venture Beat, Matt Marshall, recently contacted me and asked if I wanted to provide some “No on 87” essays in response to Vinod Khosla’s series of “Yes on 87” essays. My response to Matt was that I am ambivalent about passage, and so would not write a “No” essay. However, he said that if I wanted to write on alleged misinformation coming from the “Yes” camp, then that would be OK as well.

My first essay, Prop 87: Deceptively Marketed, addressed 3 specific claims coming from the proponents, and then I offered up my predictions. In the second essay, I went directly after a number of irresponsible claims that Vinod Khosla made in his second essay. Mr. Khosla is essentially betting people’s lives by making the claims he is making. If, ten years down the road, it becomes clear that he can’t deliver, we will have lost ten precious years in which we could have embarked upon a massive effort to deal with Peak Oil. But as long as there are Vinod Khoslas out there, naively making promises that everything will be OK, that massive effort will be delayed. Our energy policy is far too important, so I believe Mr. Khosla’s promises should be vigorously challenged.

Below is the text of my rebuttal to Vinod Khosla’s claims, which can be found in essays that he wrote for VentureBeat and The Huffington Post. Please note that I am not arguing for a “No” vote, nor am I making a blanket defense of the oil industry. I am responding to Mr. Khosla’s claims.

————————————-

Apparently some Proposition 87 proponents have never heard the adage “People in glass houses shouldn’t throw stones.” They complain about slimy tactics, while engaging in plenty of slimy tactics and hypocrisy themselves. In this essay, I will address Mr. Khosla’s second essay and show that his glass house is vulnerable to my pile of stones. This is also why I become concerned when people with expertise in one field try to influence policy in another. My dentist is a great guy, and very good at what he does, but I wouldn’t let him remove my appendix. And while he should certainly be involved in the discourse, he shouldn’t receive undue influence on energy policy just because he is a good dentist.

I explained in my previous essay who I am, and that I am not campaigning against Proposition 87. My interest is in raising the level of political discourse with respect to energy policy. My criticisms are aimed at the “Yes on 87” campaign, because much misinformation is being directed at my own industry. I find it very ironic that those who are flying around the country to decry the “evil oil industry” are doing so using jet fuel supplied by the oil industry. They enjoy many conveniences as a result of oil and gas production, but have deluded themselves into believing their lifestyle could be maintained if we all switched to alternative energy.

I don’t live in California and have never seen an ad from either side, but I have seen a number of “Yes” essays in the mold of Mr. Khosla’s latest missive. So let’s dissect his latest entry for some examples of hypocrisy, misinformation, and faulty logic. Mr. Khosla’s comments are in quotes.

Given the current oil situation the ONLY way oil prices will go down is if we have alternatives to oil.

Since it doesn’t benefit any big business interests, conservation, probably the most valuable “alternative” out there, is mostly overlooked in this debate.

Mr. Khosla: Given the massive profits they make on oil they wouldn’t want a cheaper alternative in the marketplace.

I covered profit margins in my previous essay, and noted the hypocrisy coming from an industry that sees double the profit margins of the oil industry. But “they wouldn’t want a cheaper alternative” is misinformation. The entry barrier for ethanol production and biodiesel is quite low. If ethanol is ultimately a cheaper option, oil companies will start making ethanol. Right now, most do not see that it is clearly viable in the long-term without subsidies. In fact Mr. Khosla was recently quoted in Red Herring: “Contrary to what you might believe, I think it’s extremely unlikely that in 20 years we will be using any ethanol in cars.” I think the oil industry shares this view, which is why they aren’t rushing out to build ethanol plants.

However, oil companies have made big investments into solar, wind , and biofuels. In fact, Iogen, a company running a large scale cellulosic ethanol trial, is receiving major funding from Shell. Of course this puts oil companies in a “damned either way” position. If they invest in alternatives, critics say it is a token effort, or just for public relations. If they don’t, then they are standing in the way of progress.

It is also unfair if they use their political clout to wrangle billions of dollars of subsidies from American taxpayers.

Given that the ethanol industry receives billions in direct subsidies and you are trying to secure even more with Prop 87, I am going to call this a bit of hypocrisy. The ethanol industry is the recipient of $0.51 gallon in direct ethanol subsidies. However, the subsidy is per gallon of ethanol produced, as opposed to actual net energy produced. If the ethanol energy return is 1.3/1, then it takes 3.3 gallons produced to net the energy equivalent of 1 gallon of gasoline. The website Zfacts, strongly supportive of alternative energy, concludes that when all the subsidies are added in, displacing a single gallon of gasoline costs $7.24 in ethanol. Furthermore, the ethanol industry depends on fossil fuels to drive their trucks and tractors, so any oil “subsidy” is also an indirect ethanol subsidy.

Many ethanol advocates claim that the $0.51/gallon subsidy actually benefits the oil industry. Without going into a detailed analysis of why this claim is wrong (it essentially allows ethanol producers to charge $0.51/gal more than market conditions would warrant), ask yourself why it is the ethanol/farm lobby who is fighting to keep this subsidy, and oil interests who are speaking out against it. Note that the executive vice president of the American Coalition for Ethanol vigorously defends the subsidy. Is this a case of oil company benevolence?

And they often make us pay for their R&D.

As compared to making your competitor pay for your R&D? I will admit, it is a brilliant move to force your competitor to fund your own research, but the above statement really takes hypocrisy to a whole new level.

The world uses about 12 billion gallons of ethanol today. If that was removed form the market, oil prices would spike up. If we produce more, oil prices will decline as supply increases.

This one is just faulty logic. Ethanol production in the past few years has exploded. Did oil prices decline?

A few token projects to “sound green” are thrown in but almost no money goes into finding real alternatives to oil.

As I stated earlier: “Damned either way.”

Even the small technology oriented Silicon Valley company can spend 20% of its revenue on R&D.

I have an idea then. Since Silicon Valley is so innovative, and we know that companies there are quite profitable, why don’t we tax them to fund this measure? That seems like a real win-win solution. The people who most strongly support this proposition will be the ones who will both pay for it, and “benefit” from it.

The oilies are scare mongering with their massive dollars.

We actually prefer our pejoratives to be capitalized. But this is an example of the need to raise the political discourse. Also – and feel free to correct me if I am wrong – the proponents are spending tens of millions of dollars to push this measure, and they are doing it with tactics that have been more along the lines of hate mongering.

President Clinton has said ethanol is 33% cheaper. I know it is cheaper to produce, even with the subsidies oil currently manages to get.

Ignoring the repeated hypocrisy over the subsidies, let’s talk about economics. Now, I may not be well-versed in Silicon Valley economics, but here’s what I think. If I have a product that I can make for cheaper than the competitor, why would I need mandates, subsidies, and an extortion tax on my competitors in order to compete? I don’t really think I would need this, if indeed the claim is true. So, that leaves me to believe that either the claim isn’t true, or ethanol companies are worse than oil companies at “ripping people off.”

Let’s consider the following graph from the official Nebraska government website:


This is a comparison of the average annual rack price of ethanol versus mid-grade gasoline for the past 25 years. Ethanol, with lower energy content, has been more expensive than gasoline in each of the past 25 years. So there is a track record over a long period of time that suggests that not only do ethanol prices rise and fall in response to gasoline prices (putting a damper on the argument that ethanol is going to drive down gasoline prices) but the price differential is actually greater since most people don’t buy the more expensive mid-grade.

Now, if Mr. Khosla is correct, and it is in fact cheaper to produce ethanol than gasoline, it suggests that 1). Ethanol profit margins are far higher than gasoline profit margins; 2). Ethanol producers are “ripping us all off”; and 3). Ethanol producers should have no problem funding their own growth.

I hope that Mr. Khosla can see that his glass house is quite vulnerable. I call on him to raise the level of discourse on our energy policy – regardless of the outcome of the vote.

November 4, 2006 Posted by | California, ethanol, ethanol prices, ethanol subsidies, Prop 87, Vinod Khosla | 6 Comments

People in Glass Houses

VentureBeat, a Silicon Valley-based site that focuses largely on venture capital (and venture capitalists), has been hosting a series of essays on California’s Proposition 87, which will be voted on next Tuesday. The owner of Venture Beat, Matt Marshall, recently contacted me and asked if I wanted to provide some “No on 87” essays in response to Vinod Khosla’s series of “Yes on 87” essays. My response to Matt was that I am ambivalent about passage, and so would not write a “No” essay. However, he said that if I wanted to write on alleged misinformation coming from the “Yes” camp, then that would be OK as well.

My first essay, Prop 87: Deceptively Marketed, addressed 3 specific claims coming from the proponents, and then I offered up my predictions. In the second essay, I went directly after a number of irresponsible claims that Vinod Khosla made in his second essay. Mr. Khosla is essentially betting people’s lives by making the claims he is making. If, ten years down the road, it becomes clear that he can’t deliver, we will have lost ten precious years in which we could have embarked upon a massive effort to deal with Peak Oil. But as long as there are Vinod Khoslas out there, naively making promises that everything will be OK, that massive effort will be delayed. Our energy policy is far too important, so I believe Mr. Khosla’s promises should be vigorously challenged.

Below is the text of my rebuttal to Vinod Khosla’s claims, which can be found in essays that he wrote for VentureBeat and The Huffington Post. Please note that I am not arguing for a “No” vote, nor am I making a blanket defense of the oil industry. I am responding to Mr. Khosla’s claims.

————————————-

Apparently some Proposition 87 proponents have never heard the adage “People in glass houses shouldn’t throw stones.” They complain about slimy tactics, while engaging in plenty of slimy tactics and hypocrisy themselves. In this essay, I will address Mr. Khosla’s second essay and show that his glass house is vulnerable to my pile of stones. This is also why I become concerned when people with expertise in one field try to influence policy in another. My dentist is a great guy, and very good at what he does, but I wouldn’t let him remove my appendix. And while he should certainly be involved in the discourse, he shouldn’t receive undue influence on energy policy just because he is a good dentist.

I explained in my previous essay who I am, and that I am not campaigning against Proposition 87. My interest is in raising the level of political discourse with respect to energy policy. My criticisms are aimed at the “Yes on 87” campaign, because much misinformation is being directed at my own industry. I find it very ironic that those who are flying around the country to decry the “evil oil industry” are doing so using jet fuel supplied by the oil industry. They enjoy many conveniences as a result of oil and gas production, but have deluded themselves into believing their lifestyle could be maintained if we all switched to alternative energy.

I don’t live in California and have never seen an ad from either side, but I have seen a number of “Yes” essays in the mold of Mr. Khosla’s latest missive. So let’s dissect his latest entry for some examples of hypocrisy, misinformation, and faulty logic. Mr. Khosla’s comments are in quotes.

Given the current oil situation the ONLY way oil prices will go down is if we have alternatives to oil.

Since it doesn’t benefit any big business interests, conservation, probably the most valuable “alternative” out there, is mostly overlooked in this debate.

Mr. Khosla: Given the massive profits they make on oil they wouldn’t want a cheaper alternative in the marketplace.

I covered profit margins in my previous essay, and noted the hypocrisy coming from an industry that sees double the profit margins of the oil industry. But “they wouldn’t want a cheaper alternative” is misinformation. The entry barrier for ethanol production and biodiesel is quite low. If ethanol is ultimately a cheaper option, oil companies will start making ethanol. Right now, most do not see that it is clearly viable in the long-term without subsidies. In fact Mr. Khosla was recently quoted in Red Herring: “Contrary to what you might believe, I think it’s extremely unlikely that in 20 years we will be using any ethanol in cars.” I think the oil industry shares this view, which is why they aren’t rushing out to build ethanol plants.

However, oil companies have made big investments into solar, wind , and biofuels. In fact, Iogen, a company running a large scale cellulosic ethanol trial, is receiving major funding from Shell. Of course this puts oil companies in a “damned either way” position. If they invest in alternatives, critics say it is a token effort, or just for public relations. If they don’t, then they are standing in the way of progress.

It is also unfair if they use their political clout to wrangle billions of dollars of subsidies from American taxpayers.

Given that the ethanol industry receives billions in direct subsidies and you are trying to secure even more with Prop 87, I am going to call this a bit of hypocrisy. The ethanol industry is the recipient of $0.51 gallon in direct ethanol subsidies. However, the subsidy is per gallon of ethanol produced, as opposed to actual net energy produced. If the ethanol energy return is 1.3/1, then it takes 3.3 gallons produced to net the energy equivalent of 1 gallon of gasoline. The website Zfacts, strongly supportive of alternative energy, concludes that when all the subsidies are added in, displacing a single gallon of gasoline costs $7.24 in ethanol. Furthermore, the ethanol industry depends on fossil fuels to drive their trucks and tractors, so any oil “subsidy” is also an indirect ethanol subsidy.

Many ethanol advocates claim that the $0.51/gallon subsidy actually benefits the oil industry. Without going into a detailed analysis of why this claim is wrong (it essentially allows ethanol producers to charge $0.51/gal more than market conditions would warrant), ask yourself why it is the ethanol/farm lobby who is fighting to keep this subsidy, and oil interests who are speaking out against it. Note that the executive vice president of the American Coalition for Ethanol vigorously defends the subsidy. Is this a case of oil company benevolence?

And they often make us pay for their R&D.

As compared to making your competitor pay for your R&D? I will admit, it is a brilliant move to force your competitor to fund your own research, but the above statement really takes hypocrisy to a whole new level.

The world uses about 12 billion gallons of ethanol today. If that was removed form the market, oil prices would spike up. If we produce more, oil prices will decline as supply increases.

This one is just faulty logic. Ethanol production in the past few years has exploded. Did oil prices decline?

A few token projects to “sound green” are thrown in but almost no money goes into finding real alternatives to oil.

As I stated earlier: “Damned either way.”

Even the small technology oriented Silicon Valley company can spend 20% of its revenue on R&D.

I have an idea then. Since Silicon Valley is so innovative, and we know that companies there are quite profitable, why don’t we tax them to fund this measure? That seems like a real win-win solution. The people who most strongly support this proposition will be the ones who will both pay for it, and “benefit” from it.

The oilies are scare mongering with their massive dollars.

We actually prefer our pejoratives to be capitalized. But this is an example of the need to raise the political discourse. Also – and feel free to correct me if I am wrong – the proponents are spending tens of millions of dollars to push this measure, and they are doing it with tactics that have been more along the lines of hate mongering.

President Clinton has said ethanol is 33% cheaper. I know it is cheaper to produce, even with the subsidies oil currently manages to get.

Ignoring the repeated hypocrisy over the subsidies, let’s talk about economics. Now, I may not be well-versed in Silicon Valley economics, but here’s what I think. If I have a product that I can make for cheaper than the competitor, why would I need mandates, subsidies, and an extortion tax on my competitors in order to compete? I don’t really think I would need this, if indeed the claim is true. So, that leaves me to believe that either the claim isn’t true, or ethanol companies are worse than oil companies at “ripping people off.”

Let’s consider the following graph from the official Nebraska government website:


This is a comparison of the average annual rack price of ethanol versus mid-grade gasoline for the past 25 years. Ethanol, with lower energy content, has been more expensive than gasoline in each of the past 25 years. So there is a track record over a long period of time that suggests that not only do ethanol prices rise and fall in response to gasoline prices (putting a damper on the argument that ethanol is going to drive down gasoline prices) but the price differential is actually greater since most people don’t buy the more expensive mid-grade.

Now, if Mr. Khosla is correct, and it is in fact cheaper to produce ethanol than gasoline, it suggests that 1). Ethanol profit margins are far higher than gasoline profit margins; 2). Ethanol producers are “ripping us all off”; and 3). Ethanol producers should have no problem funding their own growth.

I hope that Mr. Khosla can see that his glass house is quite vulnerable. I call on him to raise the level of discourse on our energy policy – regardless of the outcome of the vote.

November 4, 2006 Posted by | California, ethanol, ethanol prices, ethanol subsidies, Prop 87, Vinod Khosla | Comments Off on People in Glass Houses

People in Glass Houses

VentureBeat, a Silicon Valley-based site that focuses largely on venture capital (and venture capitalists), has been hosting a series of essays on California’s Proposition 87, which will be voted on next Tuesday. The owner of Venture Beat, Matt Marshall, recently contacted me and asked if I wanted to provide some “No on 87” essays in response to Vinod Khosla’s series of “Yes on 87” essays. My response to Matt was that I am ambivalent about passage, and so would not write a “No” essay. However, he said that if I wanted to write on alleged misinformation coming from the “Yes” camp, then that would be OK as well.

My first essay, Prop 87: Deceptively Marketed, addressed 3 specific claims coming from the proponents, and then I offered up my predictions. In the second essay, I went directly after a number of irresponsible claims that Vinod Khosla made in his second essay. Mr. Khosla is essentially betting people’s lives by making the claims he is making. If, ten years down the road, it becomes clear that he can’t deliver, we will have lost ten precious years in which we could have embarked upon a massive effort to deal with Peak Oil. But as long as there are Vinod Khoslas out there, naively making promises that everything will be OK, that massive effort will be delayed. Our energy policy is far too important, so I believe Mr. Khosla’s promises should be vigorously challenged.

Below is the text of my rebuttal to Vinod Khosla’s claims, which can be found in essays that he wrote for VentureBeat and The Huffington Post. Please note that I am not arguing for a “No” vote, nor am I making a blanket defense of the oil industry. I am responding to Mr. Khosla’s claims.

————————————-

Apparently some Proposition 87 proponents have never heard the adage “People in glass houses shouldn’t throw stones.” They complain about slimy tactics, while engaging in plenty of slimy tactics and hypocrisy themselves. In this essay, I will address Mr. Khosla’s second essay and show that his glass house is vulnerable to my pile of stones. This is also why I become concerned when people with expertise in one field try to influence policy in another. My dentist is a great guy, and very good at what he does, but I wouldn’t let him remove my appendix. And while he should certainly be involved in the discourse, he shouldn’t receive undue influence on energy policy just because he is a good dentist.

I explained in my previous essay who I am, and that I am not campaigning against Proposition 87. My interest is in raising the level of political discourse with respect to energy policy. My criticisms are aimed at the “Yes on 87” campaign, because much misinformation is being directed at my own industry. I find it very ironic that those who are flying around the country to decry the “evil oil industry” are doing so using jet fuel supplied by the oil industry. They enjoy many conveniences as a result of oil and gas production, but have deluded themselves into believing their lifestyle could be maintained if we all switched to alternative energy.

I don’t live in California and have never seen an ad from either side, but I have seen a number of “Yes” essays in the mold of Mr. Khosla’s latest missive. So let’s dissect his latest entry for some examples of hypocrisy, misinformation, and faulty logic. Mr. Khosla’s comments are in quotes.

Given the current oil situation the ONLY way oil prices will go down is if we have alternatives to oil.

Since it doesn’t benefit any big business interests, conservation, probably the most valuable “alternative” out there, is mostly overlooked in this debate.

Mr. Khosla: Given the massive profits they make on oil they wouldn’t want a cheaper alternative in the marketplace.

I covered profit margins in my previous essay, and noted the hypocrisy coming from an industry that sees double the profit margins of the oil industry. But “they wouldn’t want a cheaper alternative” is misinformation. The entry barrier for ethanol production and biodiesel is quite low. If ethanol is ultimately a cheaper option, oil companies will start making ethanol. Right now, most do not see that it is clearly viable in the long-term without subsidies. In fact Mr. Khosla was recently quoted in Red Herring: “Contrary to what you might believe, I think it’s extremely unlikely that in 20 years we will be using any ethanol in cars.” I think the oil industry shares this view, which is why they aren’t rushing out to build ethanol plants.

However, oil companies have made big investments into solar, wind , and biofuels. In fact, Iogen, a company running a large scale cellulosic ethanol trial, is receiving major funding from Shell. Of course this puts oil companies in a “damned either way” position. If they invest in alternatives, critics say it is a token effort, or just for public relations. If they don’t, then they are standing in the way of progress.

It is also unfair if they use their political clout to wrangle billions of dollars of subsidies from American taxpayers.

Given that the ethanol industry receives billions in direct subsidies and you are trying to secure even more with Prop 87, I am going to call this a bit of hypocrisy. The ethanol industry is the recipient of $0.51 gallon in direct ethanol subsidies. However, the subsidy is per gallon of ethanol produced, as opposed to actual net energy produced. If the ethanol energy return is 1.3/1, then it takes 3.3 gallons produced to net the energy equivalent of 1 gallon of gasoline. The website Zfacts, strongly supportive of alternative energy, concludes that when all the subsidies are added in, displacing a single gallon of gasoline costs $7.24 in ethanol. Furthermore, the ethanol industry depends on fossil fuels to drive their trucks and tractors, so any oil “subsidy” is also an indirect ethanol subsidy.

Many ethanol advocates claim that the $0.51/gallon subsidy actually benefits the oil industry. Without going into a detailed analysis of why this claim is wrong (it essentially allows ethanol producers to charge $0.51/gal more than market conditions would warrant), ask yourself why it is the ethanol/farm lobby who is fighting to keep this subsidy, and oil interests who are speaking out against it. Note that the executive vice president of the American Coalition for Ethanol vigorously defends the subsidy. Is this a case of oil company benevolence?

And they often make us pay for their R&D.

As compared to making your competitor pay for your R&D? I will admit, it is a brilliant move to force your competitor to fund your own research, but the above statement really takes hypocrisy to a whole new level.

The world uses about 12 billion gallons of ethanol today. If that was removed form the market, oil prices would spike up. If we produce more, oil prices will decline as supply increases.

This one is just faulty logic. Ethanol production in the past few years has exploded. Did oil prices decline?

A few token projects to “sound green” are thrown in but almost no money goes into finding real alternatives to oil.

As I stated earlier: “Damned either way.”

Even the small technology oriented Silicon Valley company can spend 20% of its revenue on R&D.

I have an idea then. Since Silicon Valley is so innovative, and we know that companies there are quite profitable, why don’t we tax them to fund this measure? That seems like a real win-win solution. The people who most strongly support this proposition will be the ones who will both pay for it, and “benefit” from it.

The oilies are scare mongering with their massive dollars.

We actually prefer our pejoratives to be capitalized. But this is an example of the need to raise the political discourse. Also – and feel free to correct me if I am wrong – the proponents are spending tens of millions of dollars to push this measure, and they are doing it with tactics that have been more along the lines of hate mongering.

President Clinton has said ethanol is 33% cheaper. I know it is cheaper to produce, even with the subsidies oil currently manages to get.

Ignoring the repeated hypocrisy over the subsidies, let’s talk about economics. Now, I may not be well-versed in Silicon Valley economics, but here’s what I think. If I have a product that I can make for cheaper than the competitor, why would I need mandates, subsidies, and an extortion tax on my competitors in order to compete? I don’t really think I would need this, if indeed the claim is true. So, that leaves me to believe that either the claim isn’t true, or ethanol companies are worse than oil companies at “ripping people off.”

Let’s consider the following graph from the official Nebraska government website:


This is a comparison of the average annual rack price of ethanol versus mid-grade gasoline for the past 25 years. Ethanol, with lower energy content, has been more expensive than gasoline in each of the past 25 years. So there is a track record over a long period of time that suggests that not only do ethanol prices rise and fall in response to gasoline prices (putting a damper on the argument that ethanol is going to drive down gasoline prices) but the price differential is actually greater since most people don’t buy the more expensive mid-grade.

Now, if Mr. Khosla is correct, and it is in fact cheaper to produce ethanol than gasoline, it suggests that 1). Ethanol profit margins are far higher than gasoline profit margins; 2). Ethanol producers are “ripping us all off”; and 3). Ethanol producers should have no problem funding their own growth.

I hope that Mr. Khosla can see that his glass house is quite vulnerable. I call on him to raise the level of discourse on our energy policy – regardless of the outcome of the vote.

November 4, 2006 Posted by | California, ethanol, ethanol prices, ethanol subsidies, Prop 87, Vinod Khosla | 3 Comments

What is it about Silicon Valley executives?

Over the weekend, I had an essay posted at VentureBeat on California’s Proposition 87:

Prop 87: Deceptively marketed

Most of you know that Vinod Khosla and I have butted heads on a few issues, but now Silicon Valley executive Bill Jolitz threw in his $0.02:

How naive. Do the research. California is the only oil producing state that DOESN’T tax oil companies for pumping the stuff out of the ground or beneath the water!

Why can’t we do a tax like Louisiana or Texas or Alaska, and put it to good use. How ironic that California is more conservative on taxes than Louisiana, Texas, and Alaska.

Oil isn’t forever – why don’t we start thinking about our kids for once?

A question for any readers from California: Is the average California voter this misinformed, or is this limited to the average Silicon Valley executive? My response to Bill is below.

—————-

I have done the research, Bill. It would appear that you are the one being naïve. In fact, I specifically discussed the tax situation in this essay. Did you read it before commenting? I have gone into more detail on the tax situation in this essay on my blog. What you have done is take a single tax, out of many, and used that to declare that “California is more conservative on taxes than Louisiana, Texas, and Alaska.” Sorry, but that’s just not correct. Here is what three of your own newspapers – of the many who have endorsed a “No” vote on 87 – have written about the tax issue.

From an Oakland Tribune editorial on 10-25-06:

Right now, California’s tax rate for oil is in about the middle among oil-producing states. The new tax proposed by Proposition 87 could make our tax the highest in the nation and force some smaller oil companies to cap their wells, reducing the 630,000 barrels a day we produce.

From a San Francisco Chronicle editorial on 10-9-06:

The seemingly nonstop succession of pro-87 television ads presents the measure as a matter of fairness: Unlike most oil-producing states, California does not impose a severance tax on the extraction of oil. The claim is accurate, but missing context. The tax burden on oil producers here in this state is comparable to others when income, property, sales and other taxes are added.

How about the L.A. Times on 9-26-06:

Proposition 87’s backers are equally disingenuous in suggesting that oil companies are getting a free ride in California, given the absence of an extraction tax. Oil companies are hardly undertaxed here; most states that have extraction taxes don’t charge California’s steep corporate income taxes.

Furthermore, your statement that California is not the only oil-producing state without an extraction tax is also incorrect. It seems you have been sipping the Kool-Aid, and failing to do your own research.

About the only thing you did get correct was your statement that oil won’t last forever. That’s true, which is why I have spent many years (and continue to do so) working on and promoting alternatives. You read that part too, right? Or did you simply read the title, and decide to grace us all with your wisdom? Again, I am not suggesting that voters should vote no, but they should certainly be more informed that you seem to be.

Cheers,

Robert Rapier

October 30, 2006 Posted by | critics, Prop 87 | 8 Comments

What is it about Silicon Valley executives?

Over the weekend, I had an essay posted at VentureBeat on California’s Proposition 87:

Prop 87: Deceptively marketed

Most of you know that Vinod Khosla and I have butted heads on a few issues, but now Silicon Valley executive Bill Jolitz threw in his $0.02:

How naive. Do the research. California is the only oil producing state that DOESN’T tax oil companies for pumping the stuff out of the ground or beneath the water!

Why can’t we do a tax like Louisiana or Texas or Alaska, and put it to good use. How ironic that California is more conservative on taxes than Louisiana, Texas, and Alaska.

Oil isn’t forever – why don’t we start thinking about our kids for once?

A question for any readers from California: Is the average California voter this misinformed, or is this limited to the average Silicon Valley executive? My response to Bill is below.

—————-

I have done the research, Bill. It would appear that you are the one being naïve. In fact, I specifically discussed the tax situation in this essay. Did you read it before commenting? I have gone into more detail on the tax situation in this essay on my blog. What you have done is take a single tax, out of many, and used that to declare that “California is more conservative on taxes than Louisiana, Texas, and Alaska.” Sorry, but that’s just not correct. Here is what three of your own newspapers – of the many who have endorsed a “No” vote on 87 – have written about the tax issue.

From an Oakland Tribune editorial on 10-25-06:

Right now, California’s tax rate for oil is in about the middle among oil-producing states. The new tax proposed by Proposition 87 could make our tax the highest in the nation and force some smaller oil companies to cap their wells, reducing the 630,000 barrels a day we produce.

From a San Francisco Chronicle editorial on 10-9-06:

The seemingly nonstop succession of pro-87 television ads presents the measure as a matter of fairness: Unlike most oil-producing states, California does not impose a severance tax on the extraction of oil. The claim is accurate, but missing context. The tax burden on oil producers here in this state is comparable to others when income, property, sales and other taxes are added.

How about the L.A. Times on 9-26-06:

Proposition 87’s backers are equally disingenuous in suggesting that oil companies are getting a free ride in California, given the absence of an extraction tax. Oil companies are hardly undertaxed here; most states that have extraction taxes don’t charge California’s steep corporate income taxes.

Furthermore, your statement that California is not the only oil-producing state without an extraction tax is also incorrect. It seems you have been sipping the Kool-Aid, and failing to do your own research.

About the only thing you did get correct was your statement that oil won’t last forever. That’s true, which is why I have spent many years (and continue to do so) working on and promoting alternatives. You read that part too, right? Or did you simply read the title, and decide to grace us all with your wisdom? Again, I am not suggesting that voters should vote no, but they should certainly be more informed that you seem to be.

Cheers,

Robert Rapier

October 30, 2006 Posted by | critics, Prop 87 | 4 Comments

Prop 87: A Reader Responds

Below is a response from reader Earl Killian, who lives in Silicon Valley. Earl sent me an e-mail a couple of days ago in response to my August essay on Prop 87:

California’s Proposition 87

It is getting close to election time, so this is a good time to revisit the issue. Besides the entry above, previous entries on Prop 87 are:

More on California’s Proposition 87

Prop 87 Interview

Addressing Proposition 87 Criticisms

Breaking Down Prop 87

Another Khosla Critic

Wow. I have written on that a lot more than I thought (although the 3rd link in the list is a pro-87 guest essay).

Anyway, I thought Earl made some very good points in his e-mail, and instead of having his comments buried in a 2-month old post, he gave me permission to post it here. I disagree with his belief that it won’t raise prices, and I may briefly comment after the essay.

———————————–

I came across your blog entry from mid-August about Prop 87. It seemed like a long time later to post a comment, so let me send an email. I can always post something if you tell me you would prefer that.

First, I can certainly sympathize with your outrage at the way Prop 87’s proponents are selling the Yes vote (and equally with the opponents selling of the No vote). However, all California ballot propositions are like that unfortunately (I have ideas on how to fix ballot propositions, but that is another matter altogether).

My big concern with what you wrote is your statements about price increase. It seems that you are missing a key item. The refineries will not pay any more for their crude, and so there will be no price increase to pass onto the consumers. The oil field operator will feel the pinch, not refiners like Chevron, etc. The oil field operator has to compete with imported crude oil, and so he cannot raise his price; the refinery would be happy to buy crude from Iran or Russia if they save $0.01 per barrel (of course certain refineries are set up to process certain kinds of crude, and cannot switch as easily, but I think they still have alternatives). All of the economists I’ve heard seem to agree on this point, by the way.

In reality this is unfortunate. A price increase at the pump would be a better tax exactly because it would actually increase gasoline prices. Increased gasoline prices would do as much to spur innovation as state funded research. Still, I believe the authors of this initiative went for an oil field tax precisely because they wanted to be able to say that gasoline prices would not rise (i.e. clever politics, not good policy).

I am also surprised with the degree to which Prop 87 is seen as an ethanol measure. Sure, ethanol will get funded, but with many other things as well. Like you I think Khosla is wrong, and ethanol will fail. However, let’s say biodiesel from algae (which really looks quite promising) succeeds. Ethanol will be a dusty footnote.

The state of California actually has decent track record at making significant progress on things like this. Let’s take another effort from the distant past (mid 1970s) as an example. Please download http://tinyurl.com/y5el2l and look at page 14 and compare the yellow line (California) to the purple line (what we would have if not for our state government’s efforts). It indicates all too well the problem of having a red white house.

The graph may seem abstract and not very significant, but the difference is HUGE. There is a gigaton of CO2 per year hidden between two lines of that graph. Just bringing the U.S. per capita kWh of 11,997 down to the California level of 6,732 would cut U.S. greenhouse gas emissions (from all sources, including transportation) by at least 17% (as much as 30-some percent if we used the saving to selectively close coal power plants). Were the U.S. to get to California’s level, we’re talking about nearly one gigaton of CO2 per year that would not be fouling Earth’s atmosphere.

Said another way, had California not been a leader, the U.S. would be emitting some sizable fraction of a gigaton CO2 more than it does today (add up the population of just California and New York–which followed California’s lead–and you get 18% of the U.S. population). (See http://tinyurl.com/zfehv for state rankings in per capita kWh use.)

I have looked over the text of Prop 87. Like every other ballot initiative I’ve ever read, it stinks. Still, I have voted for a number of stinky propositions because they are better than the alternative. I think Prop 87 falls in this category.

Again, I agree with you that corn ethanol is not the answer. Where I differ is that I don’t think Prop 87 is all about ethanol. Sure, some ethanol efforts will get funded as a result, but so will some things that might make as much of a difference as what California did from the mid 1970s onward to lead the nation in electric efficiency. Prop 87 will have a nine-member commission appointed by various interests. Even if Vinod Khosla is one of the nine, I doubt a group of diverse individuals will swallow the ethanol-only pill (now would that be a blue pill?).

The California Energy Commission did an OK job on keeping kWh per Californian down. I think the “bureaucracy” should be commended, not condemned for that. (There’s plenty of waste still to complain about, but it would have been even worse without the CEC’s efforts.)

-Earl

October 25, 2006 Posted by | Prop 87, reader submission, Vinod Khosla | 16 Comments

Prop 87: A Reader Responds

Below is a response from reader Earl Killian, who lives in Silicon Valley. Earl sent me an e-mail a couple of days ago in response to my August essay on Prop 87:

California’s Proposition 87

It is getting close to election time, so this is a good time to revisit the issue. Besides the entry above, previous entries on Prop 87 are:

More on California’s Proposition 87

Prop 87 Interview

Addressing Proposition 87 Criticisms

Breaking Down Prop 87

Another Khosla Critic

Wow. I have written on that a lot more than I thought (although the 3rd link in the list is a pro-87 guest essay).

Anyway, I thought Earl made some very good points in his e-mail, and instead of having his comments buried in a 2-month old post, he gave me permission to post it here. I disagree with his belief that it won’t raise prices, and I may briefly comment after the essay.

———————————–

I came across your blog entry from mid-August about Prop 87. It seemed like a long time later to post a comment, so let me send an email. I can always post something if you tell me you would prefer that.

First, I can certainly sympathize with your outrage at the way Prop 87’s proponents are selling the Yes vote (and equally with the opponents selling of the No vote). However, all California ballot propositions are like that unfortunately (I have ideas on how to fix ballot propositions, but that is another matter altogether).

My big concern with what you wrote is your statements about price increase. It seems that you are missing a key item. The refineries will not pay any more for their crude, and so there will be no price increase to pass onto the consumers. The oil field operator will feel the pinch, not refiners like Chevron, etc. The oil field operator has to compete with imported crude oil, and so he cannot raise his price; the refinery would be happy to buy crude from Iran or Russia if they save $0.01 per barrel (of course certain refineries are set up to process certain kinds of crude, and cannot switch as easily, but I think they still have alternatives). All of the economists I’ve heard seem to agree on this point, by the way.

In reality this is unfortunate. A price increase at the pump would be a better tax exactly because it would actually increase gasoline prices. Increased gasoline prices would do as much to spur innovation as state funded research. Still, I believe the authors of this initiative went for an oil field tax precisely because they wanted to be able to say that gasoline prices would not rise (i.e. clever politics, not good policy).

I am also surprised with the degree to which Prop 87 is seen as an ethanol measure. Sure, ethanol will get funded, but with many other things as well. Like you I think Khosla is wrong, and ethanol will fail. However, let’s say biodiesel from algae (which really looks quite promising) succeeds. Ethanol will be a dusty footnote.

The state of California actually has decent track record at making significant progress on things like this. Let’s take another effort from the distant past (mid 1970s) as an example. Please download http://tinyurl.com/y5el2l and look at page 14 and compare the yellow line (California) to the purple line (what we would have if not for our state government’s efforts). It indicates all too well the problem of having a red white house.

The graph may seem abstract and not very significant, but the difference is HUGE. There is a gigaton of CO2 per year hidden between two lines of that graph. Just bringing the U.S. per capita kWh of 11,997 down to the California level of 6,732 would cut U.S. greenhouse gas emissions (from all sources, including transportation) by at least 17% (as much as 30-some percent if we used the saving to selectively close coal power plants). Were the U.S. to get to California’s level, we’re talking about nearly one gigaton of CO2 per year that would not be fouling Earth’s atmosphere.

Said another way, had California not been a leader, the U.S. would be emitting some sizable fraction of a gigaton CO2 more than it does today (add up the population of just California and New York–which followed California’s lead–and you get 18% of the U.S. population). (See http://tinyurl.com/zfehv for state rankings in per capita kWh use.)

I have looked over the text of Prop 87. Like every other ballot initiative I’ve ever read, it stinks. Still, I have voted for a number of stinky propositions because they are better than the alternative. I think Prop 87 falls in this category.

Again, I agree with you that corn ethanol is not the answer. Where I differ is that I don’t think Prop 87 is all about ethanol. Sure, some ethanol efforts will get funded as a result, but so will some things that might make as much of a difference as what California did from the mid 1970s onward to lead the nation in electric efficiency. Prop 87 will have a nine-member commission appointed by various interests. Even if Vinod Khosla is one of the nine, I doubt a group of diverse individuals will swallow the ethanol-only pill (now would that be a blue pill?).

The California Energy Commission did an OK job on keeping kWh per Californian down. I think the “bureaucracy” should be commended, not condemned for that. (There’s plenty of waste still to complain about, but it would have been even worse without the CEC’s efforts.)

-Earl

October 25, 2006 Posted by | Prop 87, reader submission, Vinod Khosla | 8 Comments

Another Khosla Critic

A reader recently e-mailed me the following link from Reason Online:

An Open Letter to Vinod Khosla

This letter to Mr. Khosla, from a fellow Indian émigré, echoes a number of points I have made regarding Mr. Khosla and California’s Proposition 87. Some excerpts:

Now you have become the prophet of alternative fuels that, you believe, are going to revolutionize the energy industry, much as the internet revolutionized communications. You are impatient to cut by half President Bush six-year timetable to bring cellulosic ethanol produced from farm waste to the market.

But, with all due respect, even a man of your stellar track record can’t simply will markets to do his bidding; an economy is not a machine that can be manipulated according to its maker’s grand designs. If it were, India’s central planners would have made rivers of energy flow into every Indian home.

I understand that there are a lot of Khosla fans out there who think that letters like this, and my debunking of some of Khosla’s claims, are simply due to the fact that we just lack Khosla’s vision. But as I have pointed out, Mr. Khosla’s expertise in computers does not imply credibility on ethanol issues. I agree with Tad Patzek of UC-Berkeley, who said that Khosla may be a great guy, but asked if you would you allow him to do brain surgery on you. Or would you rather have someone qualified do it?

This is the disconnect that we have here. Khosla’s sycophants are quick to hand-wave away the technical problems, because they do not understand them. We aren’t talking about merely being able to throw a lot of money at this problem and solve it, or it would have been solved long ago. It is a tough nut to crack. I believe it will eventually be cracked, but progress will come in bits and spurts. (I also believe that we will eventually colonize Mars; we just won’t do it next year because significant hurdles remain – hurdles that require a lot more than cheerleading to overcome).

For you computer tech guys, consider this analogy. Let’s say I promise to mass-produce a 30 gigahertz personal computer in just 3 years. It will cost less than $500. Let’s say I successfully lobby the government for funding for my venture. Furthermore, let’s say that other important research gets pushed to the borders because people believe that my claim is credible. Now you, being knowledgeable about this sort of thing, start to critique and challenge my claims. Would I be justified in claiming that you are a naysayer and you merely lack vision? Or is it more likely that your criticisms are due to the fact that this is your area of expertise, and you understand the challenges that prevent the promise from being fulfilled in the time frame I have promised?

The bottom line on this is that it will be great if cellulosic ethanol scales up quickly (from essentially zero today) to displace a large fraction of our gasoline demand. I advocate a large amount of funding for cellulosic ethanol. But if we are counting on this, and making energy policy decisions based on this happening with a high degree of probability, then we are making a grave mistake.

(I hadn’t realized until I started formatting this that the following paragraph links to an essay that I did for The Oil Drum on Prop 87). More excerpts from the letter:

Proposition 87—which you are personally spending $1 million to promote—would force oil companies to pay taxes (or royalties, as you call them) for drilling privileges until the state has raised $4 billion for seed money toward alternative fuel ventures. You argue that California is the only state that does not collect drilling royalties, something that oil companies can well afford to pay given their “abnormally” high profits. But California imposes all kinds of other taxes that make its oil among the highest taxed in the country. Proposition 87 would raise these taxes another 50 percent, forcing Californians, who are already paying among the most exorbitant gas prices in the country, to forego energy consumption.

Your cause might involve very cutting-edge technologies, but you are promoting it with curiously outmoded economic thinking. It might be worth questioning your Prop 87 crusade by revisiting the lessons of failed policies from home.

If you have read my previous essays on Prop 87:

California’s Proposition 87

More on California’s Proposition 87

Breaking Down Prop 87

Then you know my feelings. Ironically, the “foregoing of energy consumption” mentioned above is one thing I think is a positive from Prop 87. However, this reduction in consumption is not what the proponents are promising. Furthermore, the proponents are conducting a very misleading campaign. I could give numerous examples, but I will give just one. The proponents claim time and time again that this is an excess profits tax. It is no such thing. It is an extraction tax. In theory, profits could be zero for an oil company, and they are still going to get taxed as long as the price of oil is above $$$.

Now, carefully consider this next passage:

Yet, the issue is, if ethanol has all the advantages you says it does—if it is renewable, cleaner, less volatile, more reliable, easily transportable etc.—surely you of all people could convince enough investors to cough up the $4 billion that Prop 87 would raise. Are you not turning to taxpayers because you don’t want to assume that kind of risk—and can’t convince fellow investors to either? That is hardly socially responsible.

Bingo. I have said this before. If all of the advantages that Khosla is claiming are real (including his claim of lower cost of production than gasoline!), then raising money for this shouldn’t be a problem. This should raise some caution flags.

However, I still think Prop 87 will pass. There is too much anger at oil companies, and the proponents have painted this as a way to get them back. Will the voters get what they think they are getting? I think not. I also think it is possible that there will a voter-backlash well before the fund-raising goals have been met. I am glad that I will get to watch this experiment play out from outside California.

Finally:

Where oil companies have used the government to create barriers or tipped the playing field against alternative fuels, we should fix that. (And, no, it is not an illegitimate barrier, as you claim, when oil companies don’t install enough E-85 pumps in gas stations to distribute ethanol; not carrying products that don’t maximize your profits is not the same as impeding others from offering those products).

I have pointed this out to Mr. Khosla before. If oil companies aren’t installing enough E85 pumps to suit him, then he should build his own stations. Remember, Khosla has claimed a tremendous number of advantages for ethanol. So, why not convince investors to build a lot of E85 stations? Seems like a no-brainer, UNLESS ethanol isn’t quite at the stage Khosla claims it to be. (In fact, as I have pointed out previously, we can’t produce enough ethanol to justify a fraction of the E85 pumps Khosla demands).

Mr. Khosla hasn’t listened too much to what I have said to him during our exchanges. Or perhaps he listened and decided to ignore it. Either way, maybe the same message coming from a different source will garner his attention.

I Can’t Believe My Eyes

In the strange but true category, someone e-mailed me the following link:

Khosla: Ethanol Not Final Fuel

In this story, Khosla is quoted: “Contrary to what you might believe, I think it’s extremely unlikely that in 20 years we will be using any ethanol in cars.”

I simply don’t know what to make of this. He is pushing us to spend billions of dollars to roll out all of this ethanol infrastructure, and he thinks ethanol won’t be fueling our cars in 20 years? What about all of those charts and graphs showing us making 200 billion gallons of ethanol in 20 years? Has he had a change of heart? I don’t know, but this is about the last thing I expected to come out of his mouth.

Over at AutoblogGreen, one of the posters suggested that my debunking/dialogue with Khosla helped prompt a change of heart:

Khosla: Ethanol is just a stepping stone

While I would like to think that our discussions made some difference in his opinion, it was clear from talking to him that he was not going to be easy to budge from his position. At the moment, I am at a loss to explain his apparent about-face. Maybe this is just another example of Dr. Jeckyll and Mr. Khosla?

September 30, 2006 Posted by | E85, ethanol, Prop 87, Vinod Khosla | 52 Comments