Energizing California - Chevron

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Energizing California Milken Institute Executive Summary California is facing a host of economic challenges. While the state remains a leader in technology and innovation, long-term factors such as aging infrastructure and the high cost of doing business have eroded its competitive advantage. Today, the declining housing market and related job losses in construction and mortgage finance have placed the state in a worrisome fiscal position. California is confronting the prospect of a more severe downturn than the nation as a whole is predicted to experience. Energy, however, is one of the bright spots in an otherwise dreary economic prognosis. The energy sector has been a stabilizing factor in the state’s economy, stimulating increased investment in oil and natural gas exploration, production, and refining, and pursuing alternative and renewable energy solutions with new urgency. As the United States looks to meet its growing energy needs while working toward sustainability and security, many innovative California firms, both small and large, are emerging as key players in shaping America’s energy future. Chevron, as a homegrown California firm—the largest in the state in terms of revenue, and the only major energy producer actually headquartered here—is uniquely positioned to influence the state’s course. While the company maintains its core business of oil and natural gas, it has also expanded its operations in fields such as unconventional hydrocarbons, alternative and renewable energy, and energy efficiency. This report aims to quantify the role played by the energy industry as a whole, and Chevron in particular, in California’s current economy, with an eye toward the state’s long-range prospects for leadership in the energy field. • In 2007, Chevron employed 10,000 workers, who contributed earnings of $1.2 billion and output of $4.5 billion to California’s economy. • The figures above represent only part of the story. After incorporating all the multiplier impacts of the supply chain and consumption, Chevron’s presence in California directly and indirectly generated a total of 68,700 jobs, $3.9 billion in earnings, and $9.2 billion in output in 2007. • The energy industry as a whole employs 65,000 people in California, with a total ripple impact of 304,500 jobs, $16.3 billion in earnings, and $46.3 billion in output. • As of 2007, the Bay Area was home to 7,100 Chevron employees, while Bakersfield had more than 1,100 and Los Angeles was home to 1,460. The ripple effects further extend their impacts. Industry Profile and Economic Impacts For comparative purposes in this report, we have defined the energy sector as the eleven industry categories (based on the North American Industry Classification System codes) in which Chevron operates, mainly relating to the production, manufacturing, exploration, transportation, and marketing of oil and natural gas. For the purposes of this study, we do not include power generation as a part of the energy sector. By adhering to the NAICS codes that define Chevron’s California operations, we have created a strict apples-to-apples comparison 1
Energizing California Milken Institute between Chevron and other firms engaged in exactly the same types of economic activity in the state. In 2007, Chevron accounted for just over 15 percent of jobs generated by comparable parts of the energy industry statewide. Similarly, it was responsible for approximately one-fifth of the earnings and output generated by the industry in California. But these figures represent only a partial snapshot of Chevron’s effect on California’s economy. Beyond the direct impacts of the jobs at Chevron, the earnings and pension benefits paid out, the taxes collected and the output generated, the firm creates a broader economic ripple effect across many sectors. The extent of such an impact is typically determined by analyzing the length and characteristics of the supply chain throughout the region. The industry requires an extensive production infrastructure and a large proportion of highly skilled and specialized labor, including many researchers and engineers. The supply chain activity generates yet more income for the region’s residents, who in turn recycle it back into the economy. For example, in addition to consumer spending by engineers, refinery workers, scientists, and researchers, one should also consider spending by other business professionals, restaurant workers, retail clerks, real estate agents, and many others who are indirectly dependent upon the industry. To capture both the direct and the broader effects of Chevron and the overall energy industry on the California economy, we applied unique coefficients, known as “multipliers,” developed by the Bureau of Economic Analysis (BEA) for these eleven industry codes in the state of California and its regions. These multipliers capture and quantify the additional jobs, earnings, and output created beyond the firm and beyond the industry. Statewide Impacts Chevron The average annual earnings figure per employee at Chevron is significantly higher than the average earnings in the rest of California’s energy industry. Taking an even broader comparative view of productivity measures, a Chevron employee contributes nearly four times the gross state output as the average California employee in all industries. As shown in the table on page 3, Chevron employed almost 10,000 California workers in 2007 and contributed earnings of $1.2 billion and output of $4.5 billion to the state’s economy. Combining the state personal income taxes paid by Chevron’s employees, its corporate and property taxes, and the state and local sales and excise tax revenues generated by its activities, the firm contributed just under $2.0 billion in total taxes in 2007, providing a flow of revenue that helps to sustain government programs and state infrastructure. With an employment multiplier of 6.9, every Chevron job creates nearly an additional six jobs in other sectors. As its impact reverberated through all sectors of the economy in 2007, the company was responsible for generating an additional 58,700 jobs, for a total of 68,700 jobs in California. The petroleum-refining sector alone has an employment multiplier of 8.18—a level of impact exceeded by just two other sectors out of 473 in California (electronic computer manufacturing, with a multiplier of 16.0, and funds, trusts, and other financial vehicles, at 12.6). Much of Chevron’s contribution to California’s economy is indirect and thus less immediately apparent. Chevron’s total impact on earnings and output in the state added up to $3.9 billion and $9.2 billion, respectively. 2
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Energizing California - Chevron

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