Saturday, July 21, 2012

Toward a Unified Field Theory of the Elusive Kyoto Particle, or What the Green Party might learn from the Alaska Permanent Fund

"The Alaska Permanent Fund can be seen as a successful example of a universal basic income — a natural resource dividend. It de-externalizes the price of nature — our primary economy in the final analysis. It makes it possible, by valuating pollution and depletion of limited resources, to save whales and glaciers. And it builds a buffer against hard times ahead when drill-baby-drill turns dry-baby-dry."

“Sarah Palen’s Alaska — they use the oil revenues as a matter of legal right — everyone gets a piece. Where did that come from? It's ‘Maverick Country’ but there it is. They don’t do that in Texas, but, we’re going to do that a lot, elsewhere, when we get to where we’re going to get.”

— Gar Alperovitz, placing Dr. Jill Stein’s name into nomination for President of the United States at the Green Party National Convention, Baltimore, July 14, 2012.

As much as we would like for our personal lifestyle choices — planting trees for miles travelled, growing food on living roofs, constructing passive A/C, wearing clothes made from bamboo — to be enough to stop catastrophic climate change, we know that it’s not. Global effects require global efforts.

At the UN Earth Summit in Rio this past June there seemed to be two kinds of delegates. There are the hard-nose practical negotiating ones, who are trying to lay out a path to a sustainable world with technofixes, keeping consumerism intact and talking about the “green economy.” They are nearly oblivious to the connection between environmental and economic collapse, or the speed both are coming down the track and the distance between now and a brick wall. Call these the Reformers — they believe problems can be solved without system change.

Then we have those who demand paradigm shift and were staging unauthorized demonstrations, or blocking carbon trading or REDD+, patiently waiting for Godot or the second coming while chanting and burning incense. Or perhaps they are living in a tent in a city plaza somewhere, eating in the soup kitchen and browsing a dog-eared copy of Trotsky’s writings from the free library table. In Rio the UN went to great lengths to put distance and razor wire between them and the Heads of State.

You might call these the Radicals, or to be more charitable, the “Cultural Creatives.” They believe in sweeping system change because as long as our current arrangement survives, it will torpedo anything else. Capitalism is the problem.

If these two world views have anything in common, it is unrealistic hope.

Recently we made a short trip to Alaska, where glaciers are vanishing and Pacific tuna is radioactive. Walking the streets of Juneau, we happened to come across something that might actually shift the economy to something more sustainable then an intravenous liquidity drip from the Fed. We glimpsed a middle ground between Reformers and Radicals, between Liberals and Conservatives, between Doomers and Techno-optimists; or at least something that might buy negotiating time.

It's the Alaska Permanent Fund.

Shortly after the oil from Alaska’s North Slope began flowing through the Trans-Alaska Pipeline in 1976, the Fund was created by amendment of the Alaska Constitution. Twenty-five percent of proceeds from royalties were set aside in a non-governmental corporation to benefit “current and all future generations of Alaskans.” AFP is not a development bank for in-state projects but an investment vehicle. Whenever and whereever revenue from a natural resource is large enough, it can be invested in a fund like this, and dividends paid from interest on the fund. That’s the Alaska Model. Given a much smaller revenue stream per capita than that from Alaskan oil, it makes more sense to convert the principal directly into dividends and keep the current account small.

There is some irony here, because the State hired well-known cornucopian Daniel Yergin in 1984 to estimate the potential future value of the Fund and he predicted that oil prices would probably never go above $9 per barrel “for the foreseeable future.” About two weeks after that prediction, oil went to $60 and has never looked back. It occasionally shoots to more than double that. The first time it shot much higher it killed Lehman Brothers and nearly killed the United States. We could argue that it precipitated the Arab Spring, which precipitated Occupy, but regardless, it is all of a kin. We have been living on a one-time savings account accrued over 500 million years, and we spent the first half of it in 150 years.

courtesy of The Aden Forecast
More recently oil prices went a little higher, took down Greece and Spain, and seriously threatened the European Union. Every time it does that it throws a spanner into the global economic engine, and it sinks the Baltic Shipping Index, slowing deliveries from China to million-square-foot WalMart warehouses in Houston. Cash poor, China piles up coal freighters beside the docks in Guangdong and in central China the lights go out. That slowdown eases the demand for fossil fuels just enough to stabilize prices until the next political attempt at economic growth resets the marble at the top of the race.

Alaska designed a way out of that cycle. By banking on a diminishing resource, Alaskans virtually guaranteed that their Fund will always appreciate. It is currently worth about 40 billion and return on investment was 20.6% in 2011.

Each year the Fund pays a dividend to any Alaska resident, regardless of age or years of residency, if they lived within the state for a minimum of one year and weren’t convicted of a felony or served jail time during that year. The dividend is usually between $600 and $1500. Call that a basic income, albeit a small one.

Bucky Fuller (with David Blume)
R. Buckminster Fuller once said,

“We must do away with the absolutely specious notion that everybody has to earn a living…. The youth of today are absolutely right in recognizing the nonsense of earning a living. We keep inventing jobs because of this false idea that everybody has to be employed at some kind of drudgery because, according to Malthusian-Darwinian theory, he must justify his right to exist…. The true business of people is to go back to school and think about whatever it was they were thinking about before someone came along and told them they had to earn a living.”

Whenever we read this we think of Wolfgang Amadeus Mozart, who died a young pauper, unable to pay his rent, and we wonder, how many other Mozarts have we sacrificed to the Malthusian-Darwinian gods? How many potential Einsteins or DaVincis die of malnutrition because of the intransigence of our default economic arrangement?

Imagine now, as Climatologist James Hansen suggests, that we were to apply the Permanent Fund model to carbon in the atmosphere and the “green economy” initiatives that Jill Stein and the Green Party want. Maybe we wouldn’t have to wait for the death of capitalism to get a Kyoto treaty.

University of Maine Professor Michael W. Howard, in a new book, Exporting the Alaska Model, outlines it this way:

“The government … sets a cap on the amounts of coal, natural gas, oil, and imported carbon intensive products, at levels determined by scientific requirements for reducing GHG concentrations. Any agency or company wanting to introduce carbon in any of these forms into the economy would need to buy a permit at auction. The price of the permit will be passed along in the prices for fuels, and other products further downstream, and the higher prices for carbon will reduce demand and will make alternative energy more competitive. The auction will generate substantial revenue — hundreds of billions of dollars per year. While some portion of the revenue could be set aside for government spending, say for transitional assistance to workers displaced as a result of the higher fuel prices, in a robust cap-and-dividend scheme most of the revenue is returned to residents on an equal per capita basis.”

We want an atmosphere that is a healthy 290 ppm of carbon (350 is a weaker and less justifiable target, and a pre-industrial 290 would be better for coral reefs and Antarctic ice sheets). We could set limits on nitrogen, hydrogen, chlorine or fluorine while we are at it, but lets just run the C numbers now. The C concentration in the atmosphere needs to come down and it will do that on its own (in a century or two) if we just stop injecting more all the time. We can stop injecting more by one of two ways: making it an international crime and enforcing sanctions; or putting a price on licenses to pollute and steadily shrinking the supply of permits, thereby gradually raising the price until only the most cost-effective projects can compete.

In Rio, as in Durban, Cancun and Copenhagen before, many environmental groups and spokespeople — Indigenous Peoples Network, Climate Justice, Vandana Shiva, Martin Khor — were adamantly opposed to the notion of monetizing carbon, calling it a Pandora’s Box and a Ponzi bubble. We sympathize, but we think the chances of getting carbon criminalized are pretty remote, and we can’t see the world adopting eco-socialism any time soon, so option 2 seems like all we have to work with.

As Professor Robin Hahnel at Portland State University reminded us,

“To do this we need an international treaty that places mandatory caps on national emissions. Moreover, if caps are to be fair, then richer countries, which bear greater “responsibility” for cumulative carbon emissions and have greater “capability” to solve the climate problem, must be assigned tighter, or lower caps. However – and this is what many climate justice activists fail to understand — if national emissions are capped fairly then (1) carbon trading significantly reduces the global cost of emission reductions and thereby lowers political resistance to necessary reductions, and (2) carbon trading generates a large flow of payments from more developed to less developed countries. Which means the climate treaty negotiated in Japan in 1997 known as the Kyoto Protocol put the world on the right track, and it was a huge setback when the Kyoto framework was abandoned at the climate meetings in Copenhagen in December 2009 and replaced by a vague agreement to discuss voluntary emission targets.

* * *

“Instead of denouncing cap and trade and carbon markets, climate justice activists should have been fighting alongside reformers in Copenhagen to protect the Kyoto framework from its enemies and fix its flaws by replacing the outdated annex-1 non-annex-1 categories with a more accurate index measuring national responsibility and capability on a continuum known as the Greenhouse Development Rights Framework “responsibility and capacity indicator.” Based on readily available data this indicator requires high income countries to reduce emissions significantly right away, middle income countries to reduce emissions only after achieving a higher level of per capita income, and allows low income countries to raise emissions for decades while they struggle to achieve a minimal level of economic development. Moreover, by solving the problem of how to cap emissions in all countries fairly the GDRF indicator makes it possible to leave the difficult job of awarding emission reduction credits to national governments — freeing the international treaty organization to concentrate on the far easier job of measuring actual national annual emissions — and it protects the global emission cap from being punctured by any bogus carbon trading that does occur.”

There is a lot to unpack in that statement, and we have been doing that for the past few years in this space, but for now, lets just say, “its complicated.” Hahnel assumes a number of things that should not be assumed. Like, should all Indians aspire to drive BMWs? Who guards the emissions trading henhouse and who watches them? If we agree that even poor populations should have food, basic sanitation and health services, what prevents a corresponding population surge? And, how exactly do you induce high-income countries to reduce emissions significantly, right away?

Neither is the Permanent Fund without controversy. For one thing, it attracts vultures the same way the Juneau city dump does. The legislature smells money and circles around, rubbing its hands, as did Todd and Sarah Palin. Since the Permanent Fund almost always shows a surplus and the State budget almost always shows a deficit, the temptation of the vultures to dip in is great.

Most Alaskans (84% in 1999) disapprove allowing the government to tamper with the fund, especially if that means government might spend Fund income, but currently the Legislature has authority to appropriate all of the fund's realized earnings if it wants to. Annual proposals to limit legislative draws to 5% of the Fund have consistently died in committee. Still, voter wrath has so far deterred the vultures, and the Fund abides.

James Hansen, in the February 2012 AAAS meeting in Vancouver, trotted out his Permanent Fund for Carbon Dioxide. Polluters pay. Hansen suggested the levy be $5 per ton the first year, then $10/T/yr and $100 after 10 years. At $100, the consumer fallout would be an added $1 per gallon of gas purchased at a filling station or oil delivered for home heating (although the first year it would only be 10 cents).

At ten years, according to Hansen, just the United States would add $600 billion annually to their fund (others suggest lower numbers). Six hundred billion works out to $3000-6000 per legal resident, with half shares for children (up to 2 per family). Most USAnians, except the heaviest energy users, would get more back than they pay in increased prices. The average family would receive ~$9000/yr, which could be distributed electronically to a debit card. Call it a basic income.

Hansen also pointed out what others advocating cap and share, like the late David Fleming or Richard Douthwaite recited for more than two decades: it would spur incentive for innovation/reduction. At the end of 10 years, Hansen estimated it would drop fossil use in US by 10% — 13 times the oil supply from the tar sands pipeline.

Republicans and Tea Partiers rejoice! As in Alaska, such a scheme places no burdens on taxpayers or adds new bureaucracies to government. The spending choices are in the hands of consumers.

The Alaska Permanent Fund can be seen as a successful example of a universal basic income — a natural resource dividend. It de-externalizes the price of nature — our primary economy in the final analysis. It makes it possible, by valuating pollution and depletion of limited resources, to save whales and glaciers.

Suppose for a moment that instead of oil, Alaska had, back in the second half of the 19th century, imposed a levy on gold. For every ounce of gold removed from the ground, 25 percent had to be placed into a State Permanent Gold Fund.

From 1869 when the first mine opened, to 1985 when the veins were played out and mines closed, the fund would have accumulated 1.75 billion of the 7 billion ounces from the northern side of the southwest part of the state — the Juneau Goldbelt. At today’s price that would be worth over $2.7 trillion. Just the annual interest at a modest 5% would be $135 billion, or enough to give everyone in Alaska all those things that George W. Bush promised Iraqis (and enshrined in their US-written constitution): the right to full education, cradle to grave health care, FDR’s four freedoms, etc. Alaskans could have that basic security right now, based on the gold taken out of just the Juneau Goldbelt a century ago.

Alaska, relying on oil revenue to fund most of its state budget, abolished its state income tax. Alaskans cheered. However, that created a difficult choice for Alaskans down the road, when the oil revenue runs out. Alaska will either have to enact some kind of tax, which is not likely to be popular, or divert more funds from the dividend into government expenditures, also likely to be unpopular. Looking down that road, Alaska should start diverting more oil surtax or other natural resource revenues into the Permanent Fund now, building a stronger capital buffer against hard times ahead when drill-baby-drill turns dry-baby-dry. How about salmon?

The US Congress toyed with this idea at the start of Obama’s presidency, but it died at the hands of Mitch McConnell and Lamar Alexander’s scorched earth real politik. Contrary to claims by the Heritage Foundation and others that the 2009 American Clean Energy and Security (ACES) Act (H.R. 2454), also known as the Waxman-Markey bill, which passed the House, and a similar bill introduced by Kerry and Boxer, which died in the Senate, would cost thousands of dollars per household, both the EPA and the Congressional Budget Office concluded that average net household costs in energy price hikes would be more than offset by dividends gained. Typically, with a 100% auction and 75% rebate, at least 70% of households in every state are net gainers and the remainder have the highest incentive to innovate.

Where to set the rebate — 75%, 50%, 25%? — depends a great deal on whether you lean to neoliberal or neoconservative. Neoliberals would favor a lower dividend to put more program money into government-directed efforts to stimulate innovation in carbon-abatement, energy efficiency and renewables. Neoconservatives would prefer a higher rebate because then the choices — and research agendas — are market-driven. Not surprisingly higher rebates tend to favor the rich. Poorer households spend a higher proportion of household income on energy, even though they spend less per capita on average than upper income households.

A more progressive formula, also introduced in Congress but stalled by Republicans, would involve using 14% of the revenue to increase the Earned Income Tax Credit (EITC) by 50%. Since the EITC is received only by wage earners, there would be no relief for unemployed youth, retired people, the disabled, and volunteers working for subsistence at charities, so this scheme has problems, although that is not why Republicans opposed it. Professor Howard suggests that those negatives could be remedied if the EITC were made refundable, i.e., converted to a negative income tax.

There is room for expansion in each case. The APF [Alaska Permanent Fund] could be redesigned to cover additional resources, and a higher proportion of the APF revenue could be distributed as dividends. Both the PFD [Permanent Fund Dividend] and a carbon dividend could be complemented by other basic income policies, such as a refundable Earned Income Tax Credit (EITC). What is important about each, from the point of view of basic income policy, is that each is an unconditional income, funded from commonly owned resources. At the state level, and the national level, each can perhaps begin to legitimize the idea of citizens receiving income decoupled from work.”

Howard notes that a carbon dividend may be the easiest point of entry into American political consciousness of universal income decoupled from work or conditional entitlement. This is the Fuller paradigm shift, stealthily disguised. Howard says that once created, the carbon dividend would be resilient in the face of efforts to eliminate it, as is the dividend in Alaska.

What is not to like about a monthly check in the mail for every household? It could be a winning proposal for a Green Party candidate. Granted, this is not going to solve most of the challenges confronting our species. Would we ever consider auctioning off procreation rights and banking that money to provide life-extending universal health care? Would we ever try to degrow energy and gadget consumption, including solar server farms, on a Green Party platform plank? Unlikely. We are still crows, after all, and we have a fascination with shiny things. And, we are the only animal that soils its own nest or continuously invents new ways to mass-murder its rivals.

The Permanent Fund, or cap and dividend, is a middle way. It doesn’t get us out of the woods, but with a little luck, the innovation needed to find that path might just be liberated by some budding DaVinci not having to go out and earn a living.


_, Exporting the Alaska Model: How the Permanent Fund Dividend Can be Adapted as a Reform Model for the World , Ed. Karl Widerquist and Michael W. Howard (Palgrave-Macmillan, 2012)


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