Jan 09, 2020

Last month, the Division of Oil, Gas and Geothermal Resources announced a moratorium on certain production techniques alongside new regulations and permitting processes that are sure to limit the supply of energy generated by the state.

The new policies are an extension of the philosophy that limiting in-state production of oil and gas can be a means to achieve climate goals.

One problem: economists say it won’t work. 

“If California consumers continue to demand the same amount of gasoline, it will just come from elsewhere,” Stanford University economist Charles D. Kolstad recently told the Bakersfield Californian.

Mark Evans, professor of economics at Cal State Bakersfield, agrees. He told the Californian that while something should be done to lower global carbon emissions, eliminating oil drilling in California “only affects where it’s produced.” He equated the plan to limit in-state production as “buying oil from Saudi Arabia instead of from [California].”

Adding to the chorus was University of California Berkeley economics professor Severin Borenstein, who agreed that the strategy of cutting California oil production would only serve to shift petroleum sales to oil producers outside the state. He calculated that the resulting lost income for California oil producers would be massive and far more expensive than other methods of reducing emissions.

Notably, California already depends heavily on unreliable foreign sources for its energy supply. The Bakersfield Californian report pointed out that in 1998 the state got about half of its oil from in-state production, a third from Alaska, and the rest (16%) from overseas. By 2018, California was buying 58% of its oil from foreign producers and in-state production made up just 31% of the state’s oil supply.

State and local policies limiting production have contributed to this phenomenon, effectively allowing energy jobs and revenues to flow to countries with far less stringent health, safety and environmental regulations than California.

But the economists not only reject the “limit supply” philosophy as ineffective for achieving climate goals – they also believe the approach will make emissions worse. After all, cutting in-state production will force refiners to import more oil by tanker to California from across the globe, increasing emissions in the process.

More tankers releasing more emissions to carry more foreign oil to California, all while sending jobs and revenues overseas: these are the full effects of efforts to limit in-state oil production.