The Western States Petroleum Association (WSPA) recently released a report that tries to sell the oil and gas industry in California as a big — really, really big — benefit to the state. The report, sponsored by WSPA and written by economists at the Los Angeles County Economic Development Corporation (LAEDC), tallies up jobs associated with the oil and gas industry, the industry’s share of state GDP, and the taxes paid by oil and gas consumers and producers, with the clear implication that the larger the numbers, the better. A closer look tells a different story.
The report’s timing coincides with mounting efforts by the industry to prevent transportation fuels from being subject to California’s cap-and-trade program in 2015 as scheduled under current law. This is clearly the response of an industry on the defensive, as Californians’ concerns for climate change, cleaner air, and a safer environment continue to drive our transition to a low-carbon transportation sector. Gasoline use in California is down 9% since 2005, and stands to fall further as cars become more efficient under standards, and plug-in electric vehicles, fuel cell cars and buses, and other zero- or low-emission vehicles reach the market. The oil companies can see the writing on the wall, but that doesn’t mean they are willing to change.
California households directly spend as much as $60 billion annually on gasoline and diesel, as well as the fuel costs for transporting the goods and services we purchase. We spend more than $4 billion in natural gas to heat our homes and hot water, and close to $10 billion for natural gas in commercial buildings, industry and electric generation each year. It is this spending that feeds the oil and gas industry in California.
The inconvenient truth, however, is that surprisingly little of this money stays in the state. We import more than 60% of our oil from Alaska or foreign countries, and more than 85% of our gas. So right off the bat, upwards of $50 billion that Californians spend on petroleum products and natural gas is being shipped out of state or out of the country. Instead of giving ever-larger shares of our household budgets to the oil companies, we should be accelerating the transition to clean cars, buses and bicycles, keeping money and jobs here in California and helping our health as well as our pocketbooks.
Good wages and not-so-good wages
The LAEDC report touts the high wages in some sectors of the oil and gas industry, reporting an average wage of $235,946 in the “oil and gas extraction” sub-sector and $185,488 in the “petroleum refineries” subsector. Omitted from the list is the largest sub-sector — gasoline stations — which employs a full 30% of employees in the industry, and where the average wage in 2012 was $23,200. Furthermore, even in the extraction sector, which we associate with blue-collar labor, the wages are skewed by the high salaries paid to managers and engineers, while production workers and other support personnel typically make annual wages between $40,000 and $60,000 annually.
The report’s missing costs
The report ignores the damage that the production and consumption of oil and gas do to human health and the environment. From oil spills to refinery fires, from particulate matter pollution to global climate change, the life cycle of fossil fuels imposes many costs that are not priced into the product – externalities, in the jargon of economics.
The externalities caused by heat-trapping gases like carbon dioxide from burning fossil fuels are quantified in the social cost of carbon (SCC), a monetary estimate of the damages caused by a (metric) ton of CO2. The U.S. Government has adopted $32 per ton of CO2 for 2010 and $37 in 2015 (both in 2007 dollars) as the value of the SCC, although many experts have argued that it should be higher. Based on these values, the oil and gas industry’s contribution to climate change was more than $10 billion in current dollars in 2012, without even taking into account health damages from local air pollution.
A new perspective is needed
None of this is to make light of the fact that indeed, the oil and gas industry provides many Californians with jobs, often good jobs, and that the livelihoods of ordinary working people and their families have to be a primary concern as we transition to a low-carbon economy. We are making progress in that transition, and we need to continue providing consumers with more vehicle and fuel choices. Hybrid vehicles like the Toyota Prius and other fuel-efficient vehicles are already reducing our oil consumption, while plug-in vehicles are starting to catch on and fuel cell vehicles are due on the street next year. The employees who currently work in gas stations selling candy bars for near-minimum wage will still have jobs in an electric-fueled economy; they may need a raise, but won’t get one if we just continue the status quo of giving a blank check to the oil companies.