Correction to This Article
Earlier versions of this article incorrectly said that Republican gubernatorial candidate Meg Whitman initially supported Proposition 23 before changing her position. Whitman campaign spokesman Darrel Ng said the candidate was undecided initially, then decided to oppose the measure about a month ago.
Calif.'s Prop 23 battle pits Big Oil against environmental concerns

By Steven Mufson
Washington Post Staff Writer
Thursday, October 21, 2010; 12:03 PM

Mix together a couple of big oil refiners, an arch-conservative oil tycoon, "green tech" venture capitalists, a former secretary of state and California's far-reaching climate legislation, and stir.

The result is one of the most volatile and expensive political battles of the year.

The issue is Proposition 23, a California referendum that would shelve the state's four-year-old climate legislation until unemployment there falls to 5.5 percent - more than half the current level - which economists agree could take many years. The delay would upend a myriad of solar, wind and low-emission automobile projects.

The referendum has also become a test case about the power of corporate money - mostly from two Texas-based firms - and a measure of how much climate change is sucking wind as a political cause. Fresh off their defeat on a climate bill in Congress, environmentalists and their allies are fighting to prevent their biggest policy success from being rolled back in the country's most "green"-friendly state.

The California legislation would slash greenhouse emissions by 30 percent, limit tailpipe emissions and set targets for utilities' renewable energy use.

A game of big money

One indicator of the emotional charge surrounding the debate was the language Gov. Arnold Schwarzenegger (R) used to attack Prop 23 supporters.

"Does anyone really believe that these companies, out of the goodness of their black oil hearts, are spending millions and millions of dollars to protect jobs?" Schwarzenegger said recently. "This is like Eva Braun writing a kosher cookbook. It's not about jobs at all, ladies and gentlemen. It's about their ability to pollute and thus protect their profits."

The proposition held a slight lead at one point, according to polls, but is now narrowly trailing.

The measure was the brain child of a state legislator, a Sacramento lobbyist who has represented tobacco companies and two oil refiners.

By early October, Valero Energy, the nation's biggest refiner, had poured $4 million into an ad campaign, public records show. Tesoro, the other refiner, has matched that, a company official said. The Koch brothers, who have supported the tea party movement and other conservative causes, added more than $1 million. Other donors brought the total to $16 million.

But Big Oil isn't the only big money in California.

Lined up against the refiners are a group of wealthy fund managers, clean technology investors, environmental groups and onetime Reagan secretary of state George Shultz, who believes that "climate issues are very real" and that Proposition 23 is "a very bad thing."

By early October, this group had raised its own $15 million war chest, including a $5 million contribution from one individual - a private equity fund manager named Thomas Steyer.

"It ain't exactly Che Guevara and Raul Castro versus Exxon Mobil," conceded Steyer.

The founder of a $20 billion hedge fund, Steyer said he contributed and challenged Valero's chief executive to a debate on the issue because he was "incredibly frustrated and angry that two companies could get an initiative on the ballot and shove it through."

Ads on both sides

The Environmental Defense Fund's political arm has also pumped more than $1 million into the fight and rallied its members. The League of Conservation Voters, which usually designates a "dirty dozen" political candidates, departed from practice and branded Prop 23 one of its 12 highest priority election targets; the league also gave $1.2 million. Leading clean technology investor John Doerr and his wife gave $2 million, and Vinod Khosla gave $1 million. The California nurses' union has contributed, too.

With public opinion divided and the business community split, the issue has been tricky for those on the November ballot. Meg Whitman, the Republican gubernatorial candidate, initially was undecided about Prop 23 but decided to oppose the measure about a month ago. She has said she would postpone the climate targets by one year, as allowed under the law. Her Democratic opponent, Jerry Brown, opposes the referendum.

(WATCH VIDEO: The final debate between Brown and Whitman)

"I haven't been involved in a campaign in a very long time," said the 89-year-old Shultz, who hosted a fundraiser at his Palo Alto home and attended another while sporting a tie Ronald Reagan gave him with the words "Democracy is not a spectator sport." Shultz, a longtime director of Chevron, said the California climate legislation would boost national security, improve the environment and set an example for Congress.

The oil refiners' line is that it will raise electricity and other costs and drive jobs out of the state.

"It's important to Valero that California's economy be strong," said Bill Day, a spokesman for the San Antonio-based company, which has two refineries, 80 company-owned gas stations and 1,600 employees in California. "And right now the economy out there is in terrible shape . . . [and] can't handle those extra costs."

That's the theme of the ads favoring Prop 23. In one, a nicely dressed woman pulls some envelopes out of her mailbox in a sunny, leafy suburb.

"I have enough bills," she says. "But now the politicians are putting a new energy tax on us to pay for California's global warming plan." She tells viewers, " 'Yes on 23' stops the energy tax and saves more than a million jobs."

Strolling into her kitchen, she adds, "I want to do my part on global warming. All Yes on 23 says is let's wait until people are back to work and we can afford it. . . . It's common sense."

The foes of Prop 23 have counterattacked with their own ads emphasizing job creation and demonizing out-of-state oil firms.

"California is outlining a clean energy future," a voice says against an image of wind turbines. "Growing a workforce of bright Californians, producing wind and solar power to move our state forward."

Then a black-and-white image of an oil refinery is shown. "But two Texas oil companies have a deceptive scheme to take us backward. They're spending millions pushing Proposition 23, which would kill clean energy standards and keep us addicted to costly polluting oil. Stop the job-killing dirty energy proposition."

Economic effects

The mere prospect of Prop 23 has stopped some investments already. James Watson, managing general partner of CMEA Capital, said his venture capital firm "literally stopped investing in [California] clean tech eight months ago due to this uncertainty."

The foes of Prop 23 say Valero is simply trying to avoid making the investments needed at its two California refineries. The "No to Prop 23" campaign released figures collected from state records showing that Valero and Tesoro refineries were the fourth- and eighth-worst polluters in the state, respectively.

Schwarzenegger disputes the refiners' argument that the climate bill will hurt the state's economy. He said their cost calculations omit the costs of rising oil prices, pollution-related health services, health effects from dirtier energy sources, and tax breaks for oil companies. Shultz said the climate law "creates a level playing field for different sources of energy because the playing field is not level now."

The shadow of a 2006 referendum hangs over this year's fight. Then, Shell Oil, Chevron and Exxon Mobil spent $57 million to defeat a severance tax on oil extraction that would have raised $4 billion over 10 years.

This time, however, Shell Oil says it supports California's climate law; Chevron, which opposed the climate law when it was being considered, is remaining neutral on Prop 23.

Instead, the lead role has been taken by Valero and its chief executive, William R. Kleese. Kleese was widely criticized last year for taking home generous pay while the company foundered. The cable TV investing show "Jim Cramer's Mad Money" put Kleese on its "Wall of Shame" and blasted him for issuing stock at $18.47 a share when, over the previous three years, the company had bought back 141 million shares at prices as high as $68 each. Over the past five years, the stock is down 64 percent.

Records filed with the California secretary of state show that other supporters of Prop 23 include Marathon Oil, which gave $500,000, and Occidental Petroleum, which gave $300,000. One of the largest single contributions came from the Missouri-based Adam Smith Foundation. On April 5, the foundation made a $498,000 contribution to the Prop 23 campaign, California state records show.

Former vice president Al Gore has weighed in, too. "The fight for America's clean energy future is taking place right now, and it's come to California," he said in a statement Wednesday. "This is a fight we simply cannot afford to lose."

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