California Crude: Seeking a Just Transition in the Golden State, with Kyle Meng

Notable Quotes

• California is a big, but declining, oil producer: “California in the mid-’80s went from the third-largest producing state in the United States [in terms of oil]. Since 1985, it’s been really declining—almost a straight decline—to the point where today, the oil-producing industry is ranked seventh in the United States. So, not small—but certainly not the size and dominance it enjoyed over much of the twentieth century. And its contribution to state GDP has really been also declining … by about 2 percent per year over the last 20 years.” (4:22)
• Policies need to cover all bases: “I think the state has been very wise in considering, jointly, policies on the demand side as well as policies on the supply side. So, demand—I’m talking mostly about how to change patterns of gasoline consumption by vehicles, trucks, and so forth. And on the supply side, thinking about reducing activity or emissions from the extraction and refining of fossil fuel … You can’t have one without the other. If you just have a supply-side policy, but you don’t change demand for gasoline, then California would just continue importing oil from the rest of the world. If you just have a demand-side policy without a supply-side policy, then it’s possible—though not necessarily a given, but possible—that California will just export the oil that it produces.” (9:17)
• Cleaning up pollution is good for disadvantaged communities: “We know that in California, as well as elsewhere in the country, there are vast disparities in pollution exposure between the haves and the have nots. In general, in a very systematic pattern, individuals and disadvantaged communities are exposed to dirtier air. And so, when you reduce emissions, or you reduce toxins and criteria [air pollutants] and air pollution emissions from extraction and refinery, much of that benefit actually ends up being borne by individuals in these communities in the form of cleaner air. We think that’s an important consequence of trying to reduce the supply of California’s oil and gas industry; that is, a lot of that benefit will actually be borne by disadvantaged communities.” (20:33)

Top of the Stack

• “Enhancing equity while eliminating emissions in California’s supply of transportation fuels” by Olivier Deschenes, Ranjit Deshmukh, David Lea, Kyle Meng, Paige Weber, Tyler Cobian, Danae Hernandez Cortes, Ruiwen Lee, Christopher Malloy, Tracey Mangin, Measrainsey Meng, Madeline Oliver, Sandy Sum, Vincent Thivierge, Anagha Uppal, Tia Kordell, Michaela Clemence, Erin O’Reilly, and Amanda Kelley
• Calvin and Hobbes books
• The Years of Lyndon Johnson by Robert Caro

The Full Transcript

Daniel Raimi: Hello, and welcome to Resources Radio, a weekly podcast from Resources for the Future. I'm your host, Daniel Raimi. Today, we talk with Dr. Kyle Meng, associate professor at the Bren School of Environmental Science and Management and the Department of Economics, and co-director for climate and energy of the Environmental Markets Lab (emLab) at the University of California, Santa Barbara.

I'll ask Kyle about the raft of recent policies that seek to reduce oil production and consumption in California over the next couple of decades. We'll talk about how those policies are likely to affect local communities in two major directions: First, what will the new policies mean for regions that depend on oil production and refining to support the local economy? And second, how might policies benefit those same communities that experience disproportionate harm from the industry's pollution? Stay with us.

All right. Kyle Meng from UC Santa Barbara. Thank you so much for joining us today on Resources Radio.

Kyle Meng: Thank you for having me.

Daniel Raimi: Kyle, we are going to talk today about the state where you live—California—and a host of issues related to oil production in California. But before we do that, we always ask people how they got interested in working on environmental issues, whether at a young age or later in life. So, how did you find yourself working on this stuff?

Kyle Meng: That's a good question. I've been working on environmental issues and in particular, on climate related issues for, I think now, almost two decades. I've been doing so by wearing different hats. I was an engineer at one point, I briefly moonlighted as a journalist, and then I also worked at environmental nonprofits. All trying to understand the climate problem. And then at some point, I realized there were so many open questions about how we deal with climate change that I wanted to go back to school. And then it's like most things: once you enter that world, you realize that that was just a tip to the iceberg. And so, I ended up pursuing an academic career as an environmental economist, through grad school and now in my current post at the University of California, Santa Barbara.

Daniel Raimi: That's a great way to think about it. You touched the tip of the iceberg, and then you dove in after to find the rest of it.

Kyle Meng: Yes, that's right.

Daniel Raimi: As I mentioned, we're going to talk about oil in California today. And many of our audience members probably know this, but some probably don't: California is a major producer of oil and natural gas. It has been for a long time. Can you start us off by giving us a thumbnail sketch of the history of oil in California, and also give us maybe a geographic sense of where most of the production takes place today?

Kyle Meng: Yeah, it's a good question. I think a lot of people don't realize this, but a lot of the origins of the California economy is very much wedded to the oil industry—to the crude oil industry. Shortly after the gold rush of the mid-nineteenth century, a few decades afterward, there was basically the oil boom. By the turn of the century, California had become the leading oil-producing state in the United States, and it was vying for that top poll position between California and Texas for many decades. And for about five or six decades, it really was one of the major contributors of state GDP.

In some sense, a lot of the big names you think of as like California history were actually tied to the oil industry. The Stanford brothers of Stanford University famously made a lot of their money through oil. Obviously Paul Getty, now of the Paul Getty Museum, and other philanthropies in the LA area, also made their money through oil. So, much of the lore and history of California started off with gold, and then really transferred into oil over the course of the first half of the twentieth century.

Now, that type of economic activity really peaked around the mid '80s. California in the mid '80s went from the third-largest producing state in the United States. Since 1985, it's been really declining—almost a straight decline—to the point where today, the oil-producing industry is ranked seventh in the United States. So, not small—but certainly not the size and dominance it enjoyed over much of the twentieth century. And its contribution to state GDP has really been also declining. So, declining by about 2 percent per year over the last 20 years.

So, where are we right now? Today, oil and gas extraction and refining contributes about 1 percent of state GDP, about 0.2 percent of the state workforce, but actually quite a large percentage of its air pollution. So, like 23 percent of local air pollution still comes from oil and gas extraction and refining, and about 11 percent of statewide GDP. It's a story of historical dominance, decline over the last 30 or 40 years, but one in which it still plays an important role when it comes to the state's climate policy.

Daniel Raimi: For sure. If we think about the parts of the state where extraction takes place, correct me if I'm wrong, but I think most production happens in Kern County, which is a fairly rural county a couple hours north of Los Angeles. There's also production in Los Angeles, around Los Angeles. And then there's also some offshore production. There's a lot of refining in the LA area and then also in the Bay Area. Is that about right?

Kyle Meng: That's absolutely right. So, those are the places that … I gave you some very aggregate statewide numbers. But the reality is that in both extraction and refining activity, it's very spatially concentrated in a few counties. So, Kern and Los Angeles for extraction, and then Los Angeles and Contra Costa for refining. So, when we think about and when we talk about transitions—low-carbon transitions—we have to think very carefully about those particular counties and what will happen to people in those counties as the state decarbonizes.

Daniel Raimi: Yeah, absolutely. And that's exactly what we're going to talk about for the next 25 minutes or so. Motivating a lot of this are announcements that have come from state policymakers related to oil production and related to oil consumption in the state. There have been a bunch of major policy announcements over the last six months to a year, I would say. Can you highlight a couple of the most significant ones and help us understand what were the main motivations behind them? Maybe those motivations are fairly obvious, but can you just give us some highlights of what those big policies have been?

Kyle Meng: Let me take a second to offer a little bit of backdrop for climate policy overall in the state. As many of you know, California has some of the country's—and arguably the world's—most ambitious climate policies, setting very dramatic decarbonization targets across the board for the coming decades. If you look at where the state is right now, the electricity sector is decarbonizing. Now, maybe someone will say not fast enough. But the adoption of wind and solar has accelerated that decline in greenhouse gas emissions.

The next big contributor of statewide greenhouse gases is really the transportation sector. And when I say transportation sector, I mean both the “supply” and the “demand”—supply being extraction and refining, and demand being the cars and trucks that people drive. That today is a little bit over 50 percent of statewide greenhouse gas emissions—and it's been quite stubborn. Unlike electricity which has been declining at a pretty good clip, over the last 15 years, that 51 percent (or even in level turns in terms of greenhouse gas emissions)—that's basically been flatlined. So, it's pretty stubborn. And so, because of that backdrop, a lot of the focus for state officials and the government has been: What do we do about this sector? And of course, California is very difficult because it is a car culture. People often in certain parts of the state, like in LA, have to drive very far distances for commuting. Reducing emissions in transportation really is the big question moving forward for California.

So, in that backdrop, what is the state doing? I think the state has been very wise in considering, jointly, policies on the demand side as well as policies on the supply side. So, demand—again, I'm talking mostly about how to change patterns of essentially gasoline consumption by vehicles, trucks, and so forth. And on the supply side, thinking about reducing activity or emissions from the extraction and refining of fossil fuel.

So, why are both important? Well, the problem is, you can't have one without the other. If you just have a supply-side policy, but you don't change demand for gasoline, then California would just continue importing oil from the rest of the world. If you just have a demand-side policy without a supply-side policy, then it's possible—though not necessarily a given, but possible—that California will just export the oil that it produces. And then we are in maybe like the Norway case, where you can decarbonize—you’ve got people buying all kinds of EVs—but your oil producers are still supplying oil to the rest of the world.

So, you need to do both. The state has been trying to introduce policies in lockstep to try to get both. On the demand side, there's a whole series of policies—various different subsidies for essentially incentivizing electrification of vehicles. There is the low-carbon fuel standards, which will hopefully drive down the cost of electric vehicles such that more and more Californians can purchase them. So, basically on the demand side, it's really a strategy about electrifying the vehicle fleet.

On the supply side, first of all, there is the cap-and-trade program that California has, which is the carbon price. That carbon price is applied to refiners and extractors. So, that's one policy. But then on top of that, there's been a series of policies—some of them right now just introduced by the governor, others (like pieces of legislation) that have been considered; for example, a ban on hydraulic fracking and setbacks on new oil wells. Oil wells are located oftentimes near where people live, particularly sensitive sites, like where hospitals are, schools are, and other “sensitive” pieces of infrastructure. You can actually ban the drilling of wells near those. And that's something that's gotten a lot of attention, and it's actually a proposal that the governor has recently made.

There's also other things like excise taxes—sometimes called severance tax—where you're actually taxing the production of crude oil. These are a number of policies being considered. Some of it has been introduced as legislation. They haven't all quite gotten through the legislative process yet. But there's a lot of debate right now about how to introduce supply-side policies that would match what's going to hopefully occur on the demand side.

Daniel Raimi: That's such a great overview. As we often do on the show, we're covering deeply complex topics in a really quick and concise manner. So, thanks so much for helping us do that.

So, if we think about, let's say, the next 10, 20, 30 years as California seeks to reduce not only its oil consumption but also its oil production, can you talk a little bit about what some of the implications are for oil-producing regions? Particularly Kern County, which is really where most of the extraction in the state takes place, and also the place where the industry plays a really big role in the local economy and local taxes. Can you talk a little bit about Kern County?

Kyle Meng: Yeah. Kern county is a very important focal point in all of this. Since the 1970s, its produced about 71 percent of statewide oil production. So, when you talk about oil production, much of the action is occurring in Kern. Now, this manifests in many different ways: It manifests in jobs. It manifests in local air pollution. And as you mentioned, maybe something that's not as well understood—or at least not well publicized—is that it also manifests in terms of local tax revenue. In terms of employment itself, according to your standard go-to government figures, the total amount of jobs in the sector is about two to three percent of jobs in Kern County. So, not a huge amount, but still important. And actually, these are fairly well-paid jobs in Kern County.So, that's an important thing to consider.

But it also contributes about almost like 40 percent of local pollution emissions, and this is in terms of criteria pollutants and toxic chemicals across the state. So, it's a major contributor to the air quality in the area. So, a lot of the tension around Kern has been about jobs on the one hand and air quality on the other.

But the other thing that's very important to note is that the oil and gas sector actually contributes a major share of the tax base for Kern County. About 15 to 20 percent of property taxes come in from oil and gas producers. In fact, seven of the top biggest taxpayers in Kern County for property taxes come in from oil and gas. Now, this is important because these are the taxes that actually fund local schools, public health, roads, and infrastructure—a lot of the public goods that local government provides. When we think about what happens to this sector in this county, we're not just talking about jobs and air quality, but we're actually talking about the very fabric—like the funds that contribute to the social fabric of these communities.

Daniel Raimi: That's great. And as we're talking about this, I just want to point listeners to a report that you coauthored with Olivia Deschenes and over a dozen other coauthors. The report is called, “Enhancing equity while eliminating emissions in California’s supply of transportation fuels.” We'll have a link to it in the show notes, of course, so people can quickly get to it. But it's a really great study that sort of outlines these issues and estimates some of the potential effects under different policy scenarios. (So, you know of what you speak.) So, that's oil extraction.

Let's turn now to oil refining, which as we said earlier, mostly takes place around Los Angeles and the Bay Area. Can you talk a little bit about what some of the implications are of these new and emerging policies for the refining sector in California?

Kyle Meng: The refining sector is also very spatially concentrated. Basically there's I think about 15 refineries in California, and they're all basically clustered in two locations: Los Angeles County and Contra Costa County. It is the larger source of greenhouse gas emissions across all of the industrial sectors in California.

Whereas describing extraction, there's been a decline in activity over the last three decades that's not really been happening in terms of refining output. Now, that's just largely because Californians are still driving a lot of cars, and most of the refineries are basically producing oil products for consumption in California. Most of that is basically flatline consistent with what I was telling you earlier about how greenhouse gases from the demand side have not really quite fallen.

So, these are very large facilities, very polluting. Just to give you two data points in these two counties: in Los Angeles County, over 60 percent of emissions—point source emissions—come from the handful of refineries in Los Angeles. In Contra Costa County, also about 65 percent of point source emissions come from, again, a handful of these refineries. So, thinking about what to do about these refineries is going to be very important. In particular, what kind of future they have as California decarbonizes.

Electrification of the vehicle fleet would certainly reduce demand for the products from these refineries. But there's still going to be demand for them, in the sense that, for example, jet fuel is a product from a lot of these refineries. There will still be demand coming in from jet fuel to power flights out of California, and those products are going to be coming out of these refineries.

Daniel Raimi: You've mentioned the air pollution issue a couple times with regard to extraction and refining. These are really big issues, both in and around oil producing sites and especially refining sites. I mean, there's a lot of concern around environmental justice impacts, in particular, around refineries across the United States—but also in California.

Can you talk a little bit more about the public health implications of the emissions that you talked about earlier, and what some of these changes and policies might mean for the people living close to where these activities take place?

Kyle Meng: One of the very striking realities is that—for example, oil extraction and refining, not only do these activities contribute to a lot of emissions, but because of where they're situated and where disadvantaged communities and households live, a lot of that pollution is borne by disadvantaged communities, low income communities, and communities of color. And so, one of the very striking realities is that, as you try to reduce emissions from extraction and refining in these areas, not only do you have overall benefits in terms of reduced mortality or morbidity arising from cleaner air, but actually a large share of those benefits are likely to be borne by disadvantaged communities.

That's something that I think is important to note. We know that in California, as well as elsewhere in the country, there are vast disparities in pollution exposure between the haves and the have nots. In general, in a very systematic pattern, individuals and disadvantaged communities are exposed to dirtier air. And so, when you reduce emissions, or you reduce toxins and criteria [air pollutants] and air pollution emissions from extraction and refining, much of that benefit actually ends up being borne by individuals in these communities in the form of cleaner air. We think that's an important consequence of trying to reduce the supply of California's oil and gas industry; that is, a lot of that benefit will actually be borne by disadvantaged communities.

Daniel Raimi: Absolutely. This issue just always strikes me. I mean, I imagine most of our listeners have been to Los Angeles at some point in their lives, but you can drive around Los Angeles and probably not notice oil wells. But if you go looking for them, they're not hard to find at all. And you can see them in lots of communities. They are disproportionately located in lower-income communities and often very close to where people live and work.

I remember I went through a drive-through at an In-N-Out once, and there was literally an oil well next to the drive-through that was pumping up and down as I sat there and ate my french fries. Some of these activities are just really close to where people live and work.

Kyle Meng: That's right. In fact, we have a couple of wells—all relic wells, right next to campus here at the University of California in Santa Barbara. We see it every single day.

Daniel Raimi: One issue that I'm always fascinated by, that I'd love to hear your comments on, is about how different communities feel about these big changes to policy that are going to affect fossil fuel extraction and refining in the state. I mean, it's easy to imagine a really wide range of reactions, from environmental justice communities who are probably supportive of less refining happening near where they live, to oil workers or elected officials in Kern County who really care about that tax base and those jobs. Can you talk a little bit about the range of perspectives that you're seeing cropping up in response to the policy measures that you talked about earlier?

Kyle Meng: Very good question. It's often portrayed in, I would say, very contentious terms, in the sense that there is an us-versus-them dichotomy. On the one side, there's jobs, and then on the other side, there are people breathing in dirty air—in particular, people from disadvantaged communities. I think the reality, as always, is that the case is much more complicated. The same people who worry about their jobs are also the same people who would benefit from cleaner air. And in my view, there are opportunities here that wouldn't make this as much of a zero sum game as it looks like it is.

To give you an example: There's a lot of talk about setbacks as a way to phase out oil and gas. One of the things that setbacks provide is that they definitely help in reducing exposure to pollution from oil and gas production near sensitive sites. But they also just completely shut down economic activity and also would affect demand for jobs in those areas.

So, there are questions about, like, is there a way to make people whole somehow, as opposed to just shutting down their economic livelihoods? Also in consideration are excise taxes, which, like any tax, would reduce activity but would also raise revenue. And that revenue, for example, can be used to both help with the labor market transition (or the “just transition,” if you will), or it could be used to bolster oil and gas revenue from the lost tax space.

There are ways, I think, where you can phase out production and in a way that tries to make these communities, or the impacted communities, whole. I think the broader question here is, even absent climate policy or the state’s effort to decarbonize—this industry is a declining industry. I think that's just a reality. California oil production is just not going to be able to compete in the global oil market because of how costly it is at this point to extract oil. And some of this is already happening. The question is, how do you do it in a way that doesn't lead to dramatic economic displacement or losses?

Daniel Raimi: Those are such great points. And listeners probably don't know this, but I've worked a lot on severance taxes and tax policy related to oil. And California is one of the very few states that doesn't have any meaningful statewide severance tax on oil and gas production. Pretty much every other state does. The oil sector contributes to these local taxes quite considerably, but much less so at the statewide level.

And then the other piece of context that is worth remembering is that there have been lots of booms around the United States over the last 10 or 15 years in oil and gas extraction. But California really has not been one of those places that's experienced it, for reasons that are geological and economic—the formations that produce oil in California aren't suitable to the same technologies that are being applied in, let's say, the Permian Basin, where there's been rapid growth. So, you're totally right when you say oil extraction is on a seemingly perpetual state of decline in California.

Kyle Meng: That's right. That's absolutely right.

Daniel Raimi: So, Kyle, one more question before we go to our Top of the Stack segment, which is just asking you to reflect a little bit on what we might learn from California's experience. Obviously, we're in the early days of these policies, but California is really the first state in the United States that's a major oil-producing state that is actually taking concrete steps to reduce its oil production. Are there any lessons we can learn at this point that might be applied to other states in the United States? Or if there aren't, what types of things are you going to be looking for that can inform other states as they transition to a net-zero future?

Kyle Meng: That's a very good question. It's a very big question. I think it's one that many of us are wrestling with.

I would say that there are successful economic transitions, and there are unsuccessful economic transitions. To give a famous example of what I would argue has been unsuccessful: the decline of manufacturing in the United States over the last few decades in the Midwest and elsewhere, and how it led to a pretty dramatic displacement of jobs and workers in much of the country, a lot of which we're seeing the consequences of now, politically and in other forms. I think those concerns are really valid when we think about low-carbon transitions. Like in California, there is a transition going on, but I think the reality is that, as we think carefully about a low-carbon future, there are many ways to reduce emissions—but not all are created equal.

So, what are some important criteria? I think it's important to recognize that, in places where the local economy really does depend on fossil fuels and carbon-intensive activities, a successful transition really means one in which, somehow, the brown-to-green transition manages to preserve the skills, the livelihoods, and—in many senses—the broader dignity of the people who work in that sector.

What does that mean? I think it means finding ways to help them see that they can participate in this low-carbon future—whether that is specifically in green jobs, if you will—but just for them to have a way to be able to participate in this economy, because otherwise, the displacement can have very important and very negative political consequences.

I think there's a lot of conversations here in California, and elsewhere, about what that means. It's sometimes called a “just transition.” How does government step in? Where can government revenue from different climate policies come in to help with that labor transition? I think that's something that a lot of us are thinking very carefully about. But I think it's important to think about policies that don't just shut down activity, but reduce the things we don't want—which are greenhouse gases and local pollution—but also somehow facilitate this transition. An excise tax or severance tax, I think, is actually a pretty positive way of doing that—because you raise revenue, and you can use that revenue to offset some of the local economic losses.

The other thing that I think is very important—and this is hard, because we have this romantic notion here in California of the way things are done. It used to be that in certain parts, we just produced oil, or in certain parts, we produced cereals. I think there needs to be a focus less on specific places and different modes of production in those places, and more on the people.

For example, it might very well be that places like Kern County, even absent climate policy, would not have a future in which oil and gas production is the dominant economic driver. But what about the people there? Maybe we can get rid of that notion. But how do you actually preserve economic opportunities for the people there, as opposed to for that particular sector? I think that focus allows you to think more carefully about how you—again, to my earlier point—maintain the dignity and livelihoods for the people who are actually going to suffer direct economic losses.

Daniel Raimi: That's a great point, and a great way of thinking about it, and a good note to close on. So, let's go, now, Kyle, to the top of the stack—your literal or metaphorical reading stack—asking you to recommend something that you've read or watched or heard, that you've enjoyed, and that you think our listeners might enjoy, too. What's at the top of your stack?

Kyle Meng: Given how involved I am in environmental issues, I try very hard not to read about the environment directly when I have free time.

Daniel Raimi: I understand.

Kyle Meng: I also have young children. So, the top of my stack literally right now is like a catalog of Calvin and Hobbes books that my seven-year-old has recently discovered, and I'm delighted by. When I do have time, I like to—especially in our current very polarized times—I like to read about periods in which major progress was made on important issues in a way that traversed the political divides of our time.

So, I love, for example, reading Robert Caro's work on LBJ, and about how this politician from the Hill Country of Texas managed ultimately to make some pretty important progressive policies in the United States in a period of great political divide. We're still waiting for that final book about the passage of those policies, and we might never get there. But reading about that period, and also Caro's research, gives me some hope and historical context about a lot of the issues that we're dealing with today—particularly environmental policy at the national level.

So, I like those books, and they give me a historical perspective—that just trying to keep up with minute-to-minute news doesn't quite provide me with.

Daniel Raimi: That is great. What's funny is that both of your recommendations span three generations in my family: My three-year-old is really into Calvin and Hobbes. He has no idea what it's about, but he likes the tiger. And my dad loves those Robert Caro books about LBJ. So: recommendations that are very pertinent to the Raimi family. Great.

Well, Kyle Meng, from UCSB, thank you so much again for coming on the show today, helping us understand the state of the energy transition in California and the policies that they're implementing. It's been a fascinating conversation. We really appreciate it.

Kyle Meng: Well, thank you. Thank you for the time, and I appreciate the opportunity.

Daniel Raimi: You've been listening to Resources Radio. Learn how to support Resources for the Future at rff.org/support. If you have a minute, we'd really appreciate you leaving us a rating or a comment on your podcast platform of choice. Also, feel free to send us your suggestions for future episodes. Resources Radio is a podcast from Resources for the Future.

RFF is an independent, nonprofit research institution in Washington, DC. Our mission is to improve environmental, energy, and natural resource decisions through impartial economic research and policy engagement. The views expressed on this podcast are solely those of the podcast guests and may differ from those of RFF experts, its officers, or its directors. RFF does not take positions on specific legislative proposals. Resources Radio is produced by Elizabeth Wason, with music by me, Daniel Raimi. Join us next week for another episode.