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Seismic Political Shifts Reveal Desire for Serious Change

by James Magnus-Johnston

If you demonstrate to people that the NDP [New Democratic Party] can win in Alberta, suddenly anything seems possible. —Paul Fairie, University of Calgary political scientist

 

James Magnus-JohnstonOn the problematic political spectrum, neither the right nor the left have become wholesale champions of the steady state economy. Then again, embracing something perceived as ‘new’ has never been the strong suit of the politician. It takes years of ideological evolution among the grassroots before seemingly new and different ideas become politically palatable. Seismic political shifts like the one in Alberta suggest that big ideological evolutions are underway in the unlikeliest of places, and that steady state solutions may not be far behind.

The Canadian province of Alberta—which includes Canada’s oil patch—revealed its desire for serious change in its election of an NDP government last week. While the social democratic NDP doesn’t have an explicitly ‘green’ agenda, some policy shifts acknowledge the limits to growth—growth in the oil patch, growth in debt, growth in inequality, growth in carbon emissions, and growth in overall environmental costs. Growing the oil patch at all costs has left the province vulnerable to swings in the petroleum economy, and it isn’t building a stable economy for generations to come.

Alberta’s newly-elected NDP premier, Rachel Notley. Photo Credit: Dave Cournoyer via Flickr, Creative Commons

Alberta’s newly-elected NDP premier, Rachel Notley. Photo Credit: Dave Cournoyer via Flickr, Creative Commons

The political shift represents a strong movement away from a half-century of Alberta’s Conservative ‘conventional thinking,’ including relaxed regulations for the oil and gas industry as well as an export-first policy designed for economic growth as if there were truly no tomorrow. Time will tell whether or not Premier Notley will introduce measures to supplant carbon-intensive growth with a renewable steady state, but there are signs of movement in this direction.

In March, as opposition leader, Notley introduced a motion calling on the government of Alberta to phase out the use of coal for electric power generation in Alberta. Alberta’s oil sector produces almost as many GHG emissions as do the mining and extraction of oil from the oilsands.

This week, one of the largest oil and gas companies in Canada called upon Premier Notley to introduce a carbon tax, a measure which sits at number two on Herman Daly’s top ten list of steady state policies. The call counts as either a brilliant coordinated manoeuvre on the part of the NDP and the oil patch, or the beginning of a serious change in the way Canada’s oil and gas industry perceives its responsibilities in the face of climate change.

The NDP victory also signals a willingness to tackle point three on Mr. Daly’s top ten list—limiting the range of inequality in income distribution. While Premier Notley has not signalled a willingness to institute a ‘maximum income’ level, she has designs on raising the minimum wage to $15 per hour from the country’s second lowest minimum wage of $10.20. The NDP have also vowed to reintroduce progressive income taxes, and raise corporate taxes.

This is not a promotion for social democracy per se. Social democratic governments in different jurisdictions, like my home province of Manitoba, can sometimes reflect neoliberal economic thinking rather than focus on designing an economy for fairness. But in Alberta’s example, folks have acknowledged the problems associated with half a century of growth in the extractive industry, environmental degradation, and inequality. As the political pendulum shifts in other jurisdictions, there is an opportunity for political parties of various stripes to reconsider how they can respond to growing grassroots frustration with a debt-ridden, environmentally destructive, inequitable economy.

As the costs of uneconomic growth continue to escalate, and as a new generation prepares to bear those costs, we can be sure that further movement in the direction of a steady state economy will not only become more palatable, but absolutely essential.

 

The Daly-Correa Tax: Background and Explanation

by Herman Daly

Under the heading, “Oil nations asked to consider carbon tax on exports,” John Vidal writes in The Guardian:

The Ecuadorean president, Rafael Correa, proposed a carbon tax at a summit of Arab and South American countries in October in Peru which included the heads of state and energy ministers of nine of Opec’s 12 countries. The Guardian understands the proposal was taken seriously and not dismissed out of hand. The idea was first mooted in 2001 by former World Bank senior economist Herman Daly — leading it to be dubbed the “Daly-Correa tax” — and will be further discussed by Opec countries at the UN climate talks which open on Monday in Doha.

Whether or not it will be discussed at Doha, I think it is worthwhile to explain the idea as it was presented to an OPEC Conference in Vienna in 2001. It elicited little interest on that occasion, but in 2007 was in large part adopted by President Rafael Correa of Ecuador, after being presented to him and his minister of planning, Fander Falconi, by ecological economist Professor Joan Martinez-Alier. Below is the relevant part of my speech at the OPEC conference.*

How might OPEC fit into the emerging vision of sustainable development? Permit me to speculate.

Sources of petroleum throughput derive from private or public (national) property; sinks are in an open access regime and treated as a free good. Therefore, rents are collected on source scarcity, but not on sink scarcity. Different countries or jurisdictions collect scarcity rents in different ways. In the U.S., for example, Alaska has a social collection and sharing of source rents, institutionalized in the Alaska Permanent Fund whose annual earnings are distributed equally to all citizens of Alaska. Other states in the U.S. allow private ownership of sources and private appropriation of source rents.

New institutions are being designed to take the sink function out of the open access regime and recognize its scarcity (Kyoto). Tradable rights to emit carbon dioxide, requiring first the collective fixing of scale and distribution of total emission rights, are actively being discussed. Ownership of the new scarce asset (emission rights) could be distributed in the first instance to the state, which would then redistribute the asset by gift or auctioned lease.

Ideally sink capacity would be defined as a separate asset with its own market. This would require a big change in institutions. Assuming it were done, the source and sink markets for petroleum throughput, though separate, would be highly interdependent. Sink limits would certainly reduce the demand for the source, and vice versa. The distribution of total scarcity rent on the petroleum throughput between source and sink functions would seem to be determined by the relative scarcity of these two functions, even with separate markets. Alternatively, sink scarcity rent could also be captured by a monopoly on the source side, or source scarcity rent could also be captured by a monopoly on the sink side.

To give an analogy, municipal governments, in charging for water, frequently price the source function (water supply) separately from the sink function (sewerage), thus charging different prices for inflow and outflow services related to the same throughput of water. In deciding their water usage, consumers take both prices into account. To them it is as if there were one price for water, the sum of the input and output charges. Likewise the petroleum throughput charge would be the sum of the price of a barrel of crude oil input from the source and the price of carbon dioxide output to the sink from burning a barrel of petroleum. One could consolidate the two charges and levy them at either end, since they are but two ends of the same throughput. This would be a matter of convenience. Since depletion of sources is a much more spatially concentrated activity than pollution of sinks, it would seem that the advantage lies with levying the total source and sink charge at the source end. This is especially so since the sink has traditionally been treated as an open access free good, and changing that requires larger institutional rearrangements than would a sink-based surcharge on the source price. OPEC, given sufficient monopoly power over the source, would be well positioned to function as an efficient collector of sink rents for the world community.

Could it also serve as a global fiduciary for ethically distributing those rents in the interests of sustainable development, especially for the poor? OPEC, assuming it could increase its degree of monopoly of the source, may be in a position to preempt the function of the failing Kyoto accord by incorporating sink rents (and even externalities) into prices at the source end of the petroleum throughput.

Of course OPEC does not have a monopoly on petroleum, much less on fossil fuels. It does not, even indirectly, control non-petroleum sources of carbon dioxide. So it would be easy to overestimate OPEC’s monopoly power, and the scheme suggested here does require an increase in its monopoly power. However, modern mass consumption nations such as the U.S. apparently do not have the discipline to internalize either externalities or scarcity rents into the price of petroleum. Exclusion of developing countries from the Kyoto accord, while understandable on grounds of historical fairness, undermines the prospects for accomplishing the goal of the treaty, namely limitation of global greenhouse gas emissions to a sustainable level. OPEC, assuming it had sufficient monopoly power, might be able to provide this discipline for both North and South.

The South, as well as the North, would have to face the discipline of higher petroleum prices in the name of efficiency, but would, in the name of fairness receive a disproportionate share of the sink rents. There would be a net flow of sink rents from North to South. The size of those rents would depend on OPEC’s degree of monopoly power. The distribution of the rents would be in large part decided by OPEC — a large ethical responsibility which many would be unwilling to cede to OPEC, and which OPEC itself may not want. The obvious alternative to such a global fiduciary authority, however, has already failed. The inability to reach an agreement on international distribution of carbon dioxide emission rights was the rock on which Kyoto foundered. It is hard to see how such an agreement could be reached, either as a first step toward emissions trading, or as a fixed non-tradable allocation.

It is in OPEC’s self-interest to preempt the emergence of a separate market for sink capacity, which could surely lower source demand and prices. While this gives OPEC a motivation, it also calls into question the legitimacy of the motivation as pure monopolistic exploitation. A legitimating compromise, as indicated above, would be for OPEC to behave as a self-interested monopolist on the source side, but as a global fiduciary on the sink side — that is, as an efficient collector and ethical distributor of scarcity rents from pricing the sink function. OPEC countries own petroleum deposits, but not the atmosphere. OPEC has a right to its source rents, but no exclusive right to sink rents. However, it may well have the power to charge and redistribute sink rents as a global fiduciary — exactly what Kyoto wants to do, but lacks the power to do. In addition to effecting this transfer, the expanded role of OPEC as global fiduciary might increase the willingness of other petroleum producers (e.g., Norway) to join OPEC, thus increasing its monopoly power and ability to function as here envisioned. In addition, the fiduciary role might provide ethical reasons for OPEC members to adhere to the cartel, when tempted by short-term profit opportunities to cheat.

Actually the existing OPEC Development Fund is already a step in this direction. Expansion of this fund into a global fiduciary institution for collecting and distributing sink rents, as well as the existing source rent contributions generously made by OPEC countries, is what is envisaged in this suggestion.

Just how total rents are determined and divided between source scarcity and sink scarcity is a technical problem that economists have not tackled because they have not framed the problem this way. Economists have focused on capturing source rents through property rights, and then internalizing the external sink costs of pollution through taxes. Only recently has there emerged a theoretical discussion of property rights in atmospheric sink capacity — whether these should be public or private, the extent to which trade in such rights should be allowed, and so on. As an initial rule of thumb we might assume that, since the sink side is now the more limiting function, it should be accorded half or more of the total throughput scarcity rents. In other words, sink rents should be at least as much as source rents.

Sink rents would go to an expanded OPEC Development Fund dedicated entirely to global sustainable development in poor countries (especially investments in renewable energy and energy efficiency). Source rents would continue to accrue to the country that owns the deposits, and presumably be devoted to national sustainable development. The focus here is on a new public service function for OPEC of efficiently collecting and ethically distributing sink rents in the interest of global sustainable development. Where Kyoto has failed, OPEC might succeed as a stronger power base on which to build the fiduciary role — a power base that sidesteps the inability of nations to agree on the distribution of carbon dioxide emission rights among themselves.

Although any exercise of monopoly power is frequently lamented by economists, the early American economist John Ise had a different view in the case of natural resources: “Preposterous as it may seem at first blush, it is probably true that, even if all the timber in the United States, or all the oil, or gas, or anthracite, were owned by an absolute monopoly, entirely free of public control, prices to consumers would be fixed lower than the long-run interests of the public would justify.” Ise was referring only to the source function. The emerging scarcity of the sinks adds strength to his view. The reasonableness of Ise’s view is enhanced when we remember that for a market to reflect the true price, all interested parties must be allowed to bid. In the case of natural resources the largest interested party, future generations, cannot bid. Neither can our fellow non-human creatures, with whom we also share God’s creation, now and in the future, bid in markets to preserve their habitats. Therefore resource prices are almost certainly going to be too low, and anything that would raise the price, including monopoly, can claim some justification. Nor did Ise believe that the resource monopolist had a right to keep the entire rent, even though the rent should be charged in the interest of the future.

The measurement of the two different rents presents conceptual problems. The source rents are in the nature of user cost — the opportunity cost of non-availability in the future of a non-renewable resource used up today. Assuming that atmospheric absorptive capacity is a renewable resource, the sink rent would be the price of the previously free service when the supply of that service is limited to a sustainable level. If we assume separate markets in both source and sink functions we would theoretically have a market price determined for each function. Since the functions are related as the two ends of the same throughput, the source and sink markets would be quite closely interdependent. The separate markets could be competitive or monopolistic, and differing market power would largely determine the division of total throughput rent between the source and sink functions. For example, if, following a Kyoto agreement, the total supply of sink permits were to be determined by a global monopoly, that monopoly would be in a stronger position to capture total throughput rent on petroleum than would a weak cartel that controls the source. OPEC is surely aware of this.

What might the WTO and the World Bank think of such a suggestion? Since these two institutions are well represented at this conference, this question is more than just rhetorical. So far the WTO and the World Bank have been dedicated to the ideology of globalization — free trade, free capital mobility, and maximum cheapness of resources in the interest of GDP growth for the world as a whole, including mass-consumption societies. In their view maximum competition among oil-exporting countries resulting in a low price for petroleum is the goal. Trickle down from growth for the rich will, it is hoped, someday reach the poor. I suspect the free-trading globalizers consider themselves morally superior to the OPEC monopolists. But which alternative is worse:

  1. Price- and standards-lowering competition in the interest of maximizing mass consumption by oil-importing countries by minimizing the internalization of environmental and social costs with consequent destruction of the atmosphere, and ruination of local self-reliance by a cheap-energy transport subsidy to the forces of global economic integration, or
  2. Monopoly restraints on the global overuse of both a basic resource and a basic life-support service of the environment, with automatic protection of local production and self-reliance provided by higher (full-cost) energy and transport prices, and with sink rents redistributed to the poor?

Monopoly restraint results not only in conservation and reduced pollution, but also in a price incentive to develop new petroleum-saving, and sink-enhancing, technologies, as well as renewable energy substitutes. Unfortunately there would also be an incentive to use non-petroleum fossil fuels such as coal, which would be a very negative effect from the point of view of controlling carbon dioxide. Independent national legislation limiting emissions from coal (and natural gas) may well be a necessary complement.

Ideally most of us would prefer a genuine international agreement to limit fossil fuel throughput, rather than a monopoly-based restriction imposed as a discipline by a minority of countries only on petroleum. But the Western high consumers, especially the U.S. as resoundingly reconfirmed in its recent election, have conclusively demonstrated their inability to accept any restrictions that might reduce their GDP growth rates, even in the likely event that GDP growth has itself become uneconomic. The conceptual clarity and moral resources are simply lacking in the leadership of these countries. Perhaps the leadership reflects the citizenry. But perhaps not. The global corporate “growth forever” ideology is pushed by the corporate-owned media, and rehearsed by corporate-financed candidates in quadrennial television-dominated elections.

A lack of moral clarity and leadership in the mass-consumption societies does not necessarily imply the presence of these virtues in the OPEC countries. Do there exist sufficient clarity, morality, restraint, and leadership in the OPEC countries to undertake this fiduciary function of being an efficient collector and an ethical distributor of sink scarcity rents? As argued above, there is surely an element of self-interest for OPEC, but to gain general support OPEC would have to take on a fiduciary trusteeship role that would go far beyond its interests as a profit-maximizing cartel. But a strong moral position might be just what OPEC needs to gain the legitimacy necessary to increase and solidify its power as a cartel. Could such a plan, put forward by OPEC, provide a stronger power base for the goals that Kyoto tried and failed to institutionalize? Might the WTO and World Bank recognize that sustainable development is a more basic value than free trade, and lend their support? I do not know. Maybe the whole idea is just a utopian speculation. But given the post-Kyoto state of disarray and the paucity of policy suggestions, I do believe that it is worth initiating a discussion of this possibility.

If sustainability is to be more than an empty word we have to evolve mechanisms for constraining throughput flows within environmental source and sink capacities. Petroleum is the logical place to begin. And OPEC is the major institution in a position to influence the global throughput of petroleum.

* “Sustainable Development and OPEC,” Chapter 15 in Herman E. Daly, Ecological Economics and Sustainable Development, Edward Elgar Publishers, Cheltenham, UK, 2007.

Finding Real Economic Leadership in the Wake of Rio+20

by Brent Blackwelder

Twenty years after the seminal “Earth Summit” on sustainable development in Rio de Janeiro, Brazil once again has hosted a “fate-of-the-earth” meeting (Rio+20) focused on the themes of a green economy and institutional change.  In the aftermath of the 1992 meeting, too many nations, including the United States in particular, failed to reverse the downward trend in planetary ecosystem health. Today, with a global population of 7 billion consuming resources beyond the ability of the earth to replenish itself, we’d better hope there’s a better attempt at the transition to a sustainable economy after this meeting.

Change must begin with the structure of the economy because a nation’s economic policy is also its social and environmental policy. National economies all over the world are failing — failing to provide economic stability, failing to secure resources for future generations, failing to protect ecosystems and non-human species, and failing to achieve social justice.

In anticipation of the Rio+20 summit, Foundation Earth published a report called “The Economic Rethink: Who Does It Well?.” It challenges leaders to adopt big changes and gives them examples to follow from a variety of nations.  In preparing the report, Randy Hayes, founder of the Rainforest Action Network, and I reviewed over a dozen scorecards that grade nations on their performance — some focus on corruption, others on empowerment of women, still others on environmental protection.

In our 16-category analysis, Brazil, the host of the Rio+20 meeting, receives a failing grade, missing the boat in 13 categories of action toward a sustainable economy. Brazil’s political leadership is intending to make the nation a global powerhouse in agricultural exports, an intention that would mean sacrificing the world’s greatest tropical rainforest, the Amazon, to accommodate industrial plantations for food and biofuel exports.

But the report goes beyond the question of accountability for Brazil. It highlights significant positive steps that some nations are taking to shift to a new economy. In most of the 16 categories, at least a few nations are taking leadership roles. The twin goals of an environmentally restored earth and a socially just civilization are not part of a utopian fantasy: people have adopted inspiring policies and taken forward-looking actions in real places around the globe. The challenge is to make sure that the following examples become the rule rather than the exception:

  • Bhutan is leading the way in development of new indicators of progress. The “gross national happiness” measures deeper values that cannot be captured by GDP.
  • The Dominican Republic, which shares the island of Hispaniola with deforested Haiti, is demonstrating leadership forest restoration. Since 2003, forest cover in the Dominican Republic has increased from 32% to almost 40%.
  • In the energy sector, several leaders are stepping forward. Sweden, Costa Rica, and British Columbia (Canada) have instituted carbon taxes to include the ecological cost of energy use in its price. And Germany has blazed a clean energy trail with outstanding results in solar and wind power.
  • Cuba is an innovator in organic community agriculture. Havana grows 50% of its fresh produce within the city limits.
  • In a world awash with financial scandals and offshore tax havens, New Zealand has become the “least corrupt nation” because of its effective legal framework, fiscal transparency, and accountability.
  • Bolivia and Ecuador have put a rights-of-nature provision in their legal codes as have several cities and towns in the United States.
  • Iceland, number one on the Global Gender Gap rankings, is a nation of empowered women. Women in the Land of Fire and Ice hold the majority of jobs in university education and have nearly equal representation in parliament.
  • In contrast to Brazil’s determination to fill the Amazon with massive dams, the United States has led the world in one category: restoration and protection of rivers. Over 1,000 dams have now been removed in the U.S. to restore fisheries and water quality. Furthermore, more than 250 rivers have been safeguarded in the National Wild and Scenic Rivers System.
  • In the Netherlands, “repair cafes” are beginning to address the problem of over-consumption. Such cafes encourage reuse of broken and weathered possessions, providing free repair services.

These examples of leadership are well worth celebrating, but many challenges remain along the path to a sustainable economy. The biggest challenge is that no nation adequately addresses carrying capacity, planetary limits to growth, or sustainable economic scale. All nations must overcome this challenge to ensure a healthy planet and flourishing civilization for future generations.

It remains to be seen what progress will flow out of the Rio+20 meeting, but examples of real leadership in “The Economic Rethink” offer hope that we can dispose of the “disposable economy.”   There’s no longer room for an economy that treats the earth like it’s the site of a liquidation sale.

The New Congressional Debt Panel: An Opportunity for an Essential Economic Debate

by Brent Blackwelder

The debt ceiling debacle was temporarily resolved in early August with a deal that included the creation of a 12-member Congressional debt panel (officially labeled the Joint Select Committee on Deficit Reduction).  This panel is charged with producing recommendations by this November to reduce federal budget deficits by at least $1.5 trillion over 10 years.

The Congressional debt panel will be under huge pressure from the corporate-driven Tea Party to limit its consideration only to cuts in federal government spending to achieve deficit reduction. This means average Americans, the poor, and minorities are the ones who will lose important programs designed for their benefit, while the tax giveaways for transnational corporations will continue. This is a recipe for social upheaval.

Some progressives argue that this panel of six Republicans and six Democrats, along with a President who cannot drive a hard bargain, guarantees gridlock and mounting frustration; however, now is a teachable moment for steady staters and other reformers to get on the offensive and present a larger economic vision. Those concerned with a sustainable economy should seize this opportunity to demand meaningful changes, such as basic reforms of the Tax Code.  But make no mistake — it will be a big fight.  The corporate-run Tea Party is intent on forcing the Republican Party to resist increases in anyone’s taxes, especially those of the well-to-do.

Three revenue changes are urgently needed: (1) cutting government handouts to polluters; (2) instituting revenue-raising measures that move us toward sustainability, such as a carbon tax and a transactions tax on international currency trading, and (3) cracking down on tax dodgers and offshore tax havens, which cost the Treasury an estimated $100 billion a year and which undermine the ability of governments to function.

Cutting Polluter Subsidies

Both state and federal tax codes provide enormous subsidies to polluters, thereby sending the wrong ecological price signal to the consumer. After reviewing more than $100 billion in subsidies to old energy technologies, Michelle Chan, director of international programs at Friends of the Earth, notes: “We are not going to get past reliance on yesterday’s technologies if we continue to subsidize them as if they were brand new.” But a bill in the Senate this spring to cut $20 billion in oil and gas subsidies was vigorously opposed by oil companies like Conoco Phillips who labeled the legislation “un-American.” Since when did subsidies to bloated corporations become the definition of “American?”

Fossil fuel barons, like the Koch brothers who underwrite the Tea Party, understand the enormous potential of solar, wind, geothermal, and conservation efforts to undermine their polluting industries. Thus, they seek to portray the removal of these special fossil fuel subsidies as a “tax increase.” Such flim-flam must be exposed.

Raising Money through Carbon Prices and Fees on Currency Transactions

Putting a price on carbon through a carbon tax or a fuel tax, could provide major revenue. The Carbon Tax Center provides details on such taxes. In addition to fundraising potential, a strong carbon price signal would decrease pollution from fossil fuel usage.

Two huge new revenue raisers could come from the financial sector and involve modest surcharges on groups that not only could readily pay them, but also richly deserve to pay them: major banks and their superrich, often tax-dodging global corporate and individual clients (James Henry and I have suggested these measures before).

The first is a version of the Tobin tax that would apply to wholesale foreign exchange transactions (not to retail customers). Given the astonishing $4 trillion per day of such transactions, a tax of less than a dime per $1,000 of transactions would yield at least $50 billion per year. A similar low marginal tax rate on all international financial transactions, including stocks, bonds, options, and derivatives, could readily collect at least twice that amount.

The second new revenue stream is an “anonymous wealth” tax: a modest 0.5% annual withholding tax on the estimated $15 to $22 trillion of liquid private financial assets — bank deposits, money-market funds, mutual funds, public securities, and precious metals — now sitting, almost entirely untaxed, in anonymous offshore accounts, trusts, and foundations.

This tax could raise between $25 billion to $50 billion per year. Such a tax is easy administratively because these “private banking” assets are heavily concentrated in the hands of a small number of leading banks and the largest recipients of “too big to fail” assistance.

Cracking Down on Tax Dodgers and Closing Loopholes

The unwillingness of Republicans to look at revenues lost as a result of tax dodging is astonishing since the $100 billion they sought to cut is the figure estimated to be lost as a result of offshore tax havens. Fortunately Senator Levin has introduced legislation (endorsed by the Tax Justice Network) to close tax loopholes.

Many objectionable loopholes could be closed and thereby yield revenue. For example, obscenely wealthy hedge fund managers pay a lower rate on their income than regular wage earners.

Rallying for a Just Cause

Now is the time to put grassroots pressure on the media, especially in the states and districts of the 12 Senators and Representatives on the debt panel. Let’s seize the offensive and move the discussion of tax code changes under the framework of responsibility.  Below are the members of the panel, in case you’re feeling motivated to start a conversation.

Democratic Senators: Patty Murray (Washington), Max Baucus (Montana), and John Kerry (Massachusetts).
Republican Senators: Jon Kyl (Arizona), Rob Portman (Ohio), and Patrick Toomey (Pennsylvania).

Democratic Representatives: James Clyburn (South Carolina), Xavier Becerra (California), and Chris Van Hollen (Maryland).
Republican Representatives: Jeb Hensarling (Texas), Dave Camp (Michigan), and Fred Upton (Michigan).