Companies have been decamping from California for greener pastures so frequently that, in some ways, Chevron’s announcement is barely newsworthy. The particulars of Chevron’s decision are important, however, because they exemplify the large economic risks California’s policymakers are taking.
Judged by their actions, California’s political leaders, including Governor Newsom, have been pushing Chevron to leave for many years. How else to interpret the state’s unwillingness to issue new oil drilling permits and its decision to sue the large oil companies (including Chevron) over bogus claims that they misled the public about the risks of fossil fuels.
As I argue here, the lawsuits are particularly troubling. They are blatant attempts to set the nation’s energy policies through the judicial system, counterproductive environmentally because they discourage the necessary innovations, and reduce overall economic growth by imposing exceptionally large cost burdens on consumers.
Throw in the excessive taxes and overwhelming regulatory burdens that are widely encouraging businesses to emigrate to other states and the most surprising fact is that it took Chevron so long to leave.
The response from the Governor’s spokesperson is also revealing. As reported by the New York Times,
A spokesman for California’s governor, Gavin Newsom, said Chevron’s planned move wasn’t a surprise. “We’re proud of California’s place as the leading creator of clean energy jobs — a critical part of our diverse, innovative and vibrant economy,” the spokesman, Alex Stack, said.
Citing Politico, Cal Matters reports that “following the announcement, Newsom posted — then quickly removed — a video touting legislation he pushed last year to investigate alleged price gouging from oil companies”.
This cheerleading in response to a major corporation moving its headquarters out of California highlights the future risks to economic prosperity that state leaders are taking. Often, advocates for progressive industrial policies will claim that state tax policies do not influence migration or business location decisions. California’s leaders appear to acknowledge that their policies have chased Chevron out of the state – but they just don’t seem to care.
The political leadership is apparently indifferent because they know that fossil fuels are yesterday’s technology and in the 21st century, it is clean energy jobs that matter. Policies based on such hubris rarely work out well.
The future of energy production is unknown, and history is replete with examples of failed companies who were initially hailed as the clean energy leaders of tomorrow. Whether it is biofuels, hydrogen, or the growing global failures of onshore wind generation, technologies that often look promising fail to live up to their initial hype.
California’s political class ignores these clear lessons from history. They subsidize their preferred energy sources of wind and solar despite the growing evidence that their generation capacity is limited and their impacts on the environment are not nearly as benign as advocates claim. When coupled with their efforts to chase out Chevron and prevent the development of the state’s plentiful fossil fuel resources, it becomes clear that California’s political class is making a very risky bet.
Making this policy worse, the policymakers making this gamble are not putting themselves at risk. Should today’s alternative energy investments not work out – a very likely scenario – its costs will be borne by residents in the future, not the politicians making this bet. The political classes will have moved on, but residents of the state will bear the costs in terms of fewer economic opportunities, higher energy costs, and a less reliable energy sector.
Predicting the future energy system is exceedingly difficult. Rather than celebrating the loss of an important economic asset, Chevron’s departure should encourage the Governor and legislative leaders to engage in some self-reflection.
Why are so many companies choosing to locate their businesses elsewhere? Why are energy costs so much higher in California than in the rest of the country? Should the state be betting its economic future on an uncertain industry with a poor track record?
Unfortunately for state residents, policy leaders are more interested in their celebrations than thoughtful reflection.
Dr. Wayne Winegarden is a senior fellow in business and economics at the Pacific Research Institute.
