The Progressive Response

Volume 8, Number 1
January 9, 2004

Editor: John Gershman, Interhemispheric Resource Center (IRC)

The Progressive Response (PR) is produced weekly by the Interhemispheric Resource Center (IRC, online at www.irc-online.org) as part of its Foreign Policy in Focus (FPIF) project. FPIF, a "Think Tank Without Walls," is an international network of analysts and activists dedicated to "making the U.S. a more responsible global leader and partner by advancing citizen movements and agendas." FPIF is joint project of the Interhemispheric Resource Center and the Institute for Policy Studies. We encourage responses to the opinions expressed in the PR and may print them in the "Letters and Comments" section. For more information on FPIF and joining our network, please consider visiting the FPIF website at http://www.fpif.org/, or email <feedback@fpif.org> to share your thoughts with us.

John Gershman, editor of Progressive Response, is a senior analyst with the Interhemispheric Resource Center (IRC) (online at www.irc-online.org). He can be contacted at <john@irc-online.org>.

 

Table of Contents

I. Updates and Out-Takes

EDITOR’S NOTE

BUSH-CHENEY ENERGY STRATEGY: PROCURING THE REST OF THE WORLD’S OIL
By Michael Klare

GLOBAL WARMING BACKGROUNDER
By Tom Athanasiou

FUELING CONFLICT
By Michael Renner

THE GLOBAL RECORD
By Terry Lynn Karl and Ian Gary

TOWARD A GLOBAL ENERGY TRANSITION
By Ross Gelbspan

COMBATING THE NATURAL RESOURCE CURSE WITH CITIZEN REVENUE DISTRIBUTION FUNDS: OIL AND THE CASE OF IRAQ
By Thomas I. Palley

II. Letters and Comments

KUDOS

DEPRESSING TALE

I. Updates and Out-takes

Dear Readers,

Over 300 people attended the PetroPolitics National Summit (January 6-8) sponsored jointly by Foreign Policy in Focus (www.fpif.org) and the Sustainable Energy and Economy Network (www.seen.org). Coverage of the conference is available from C-SPAN.

This special PetroPolitics issue of the Progressive Response provides excerpts of the five briefing papers prepared for the conference as well as of a special report by regular contributor Tom Palley, who was one of the panelists at the summit. Fully footnoted versions of the briefing papers will be available shortly as reports on the Petropolitics site (www.petropolitics.org) website as well as the FPIF website (www.fpif.org).

The Summit marks the kick-off event for ongoing coverage of these issues over the next year as we explore the connections between U.S. foreign policy, energy, and the environment. Your suggestions, comments, criticisms, and feedback is--as always--encouraged. Please send any ideas or thoughts you have to <john@irc-online>.

Copies of the complete briefing book (which includes fact sheets not yet available online) are available for $10 from FPIF’s Policy Outreach Director Erik Leaver, Institute for Policy Studies-FPIF, 733 15th St NW, Suite 1020, Washington DC, 20005, tel: (202) 234-9382, fax: (202) 387-7915.

Thanks to all who responded to our recent appeal to support FPIF and the Progressive Response.

Sincerely,

John Gershman
Co-Director, FPIF
Editor, Progressive Response

BUSH-CHENEY ENERGY STRATEGY: PROCURING THE REST OF THE WORLD’S OIL
By Michael Klare

(Editor’s Note: Excerpted from a briefing paper available in full at http://www.fpif.org/papers/03petropol/politics.html .)

When first assuming office in early 2001, President George W. Bush’s top foreign policy priority was not to prevent terrorism or to curb the spread of weapons of mass destruction--or any of the other goals he espoused later that year following the September 11, 2001 attacks on the World Trade Center and the Pentagon. Rather, it was to increase the flow of petroleum from suppliers abroad to U.S. markets. In the months before he became president, the United States had experienced severe oil and natural gas shortages in many parts of the country, along with periodic electrical power blackouts in California. In addition, oil imports rose to more than 50% of total consumption for the first time in history, provoking great anxiety about the security of the country’s long-term energy supply. Bush asserted that addressing the nation’s “energy crisis” was his most important task as president.

He and his advisers considered the oil supply essential to the health and profitability of leading U.S. industries. They reasoned that any energy shortages could have severe and pervasive economic repercussions on businesses in automobiles, airlines, construction, petrochemicals, trucking, and agriculture. They deemed petroleum especially critical to the economy because it is the source of two-fifths’ of the total U.S. energy supply--more than any other source,--and because it provides most of the nation’s transportation fuel. They also were cognizant of petroleum’s crucial national security role as the power for the vast array of tanks, planes, helicopters, and ships that constitute the backbone of the U.S. war machine.

“America faces a major energy supply crisis over the next two decades,” Secretary of Energy Spencer Abraham told a National Energy Summit on March 19, 2001. “The failure to meet this challenge will threaten our nation’s economic prosperity, compromise our national security, and literally alter the way we lead our lives.” The energy turmoil of 2000-2001 prompted Bush to establish the National Energy Policy Development Group (NEPDG), a task force of senior government representatives charged with developing a long-range plan to meet U.S. energy requirements. To head this group, Bush picked his closest political adviser, Vice President Dick Cheney.

A Republican Party stalwart and a former secretary of Defense, Cheney had served as chairman and chief executive officer of the Halliburton Co., an oilfield services firm, before joining the Bush campaign in 2000. As such, Cheney availed himself of top executives of energy firms, such as Enron Corp., for advice on major issues. As the NEPDG began its review of U.S. energy policy, its members saw the United States was faced with a grave choice between two widely diverging paths. It could continue down the road it had long been traveling, consuming increasing amounts of petroleum and--given the irreversible decline in domestic oil production--becoming ever more dependent on imported supplies. Or, it could choose an alternate route of reliance on renewable sources of energy and gradually reducing petroleum use.

Clearly, the outcome of this decision would have profound consequences for society, the economy, and the nation’s security. Following the same path would bind the United States ever more tightly to Persian Gulf suppliers and to other oil-producing countries, with a corresponding impact on U.S. security policy. Pursuing an alternative strategy would require a huge investment in new energy- generation and transportation technologies, resulting in the rise or fall of entire industries. Either way, the public would experience the impact of this choice in everyday life and in the dynamics of the economy as a whole. No one, in the United States or elsewhere, would be left entirely untouched.

In the end, Bush made a clear decision regarding future U.S. energy behavior. Knowing that nothing can reverse the long-term decline in domestic oil production, and unwilling to curb the country’s ever-growing thirst for petroleum products, he elected to continue down the existing path of ever-increasing dependence on foreign oil.

In its pursuit of petroleum, the United States is intruding in the affairs of the oil-supplying nations. In the process, it exposes itself to increased risk of involvement in local and regional conflicts. This reality has already influenced U.S. relations with the major oil-producing nations and is sure to have an even greater impact in the future.

At no point does the NEP acknowledge this. Instead, it focuses on the economic and diplomatic dimensions of the energy policy. However, the architects of the Bush-Cheney policy know that ensuring access to some oil sources may prove impossible without the use of military force. The administration’s military strategy takes up the slack with heavy emphasis on bolstering capacity to project firepower to key battlefields abroad. “The United States must retain the capability to send well-armed and logistically supported forces to critical points around the globe, even in the face of enemy opposition,” states its Quadrennial Defense Review.

These critical points would necessarily include areas that are petroleum sources. Whether or not the administration consciously linked energy with its security policy, Bush undeniable prioritized the enhancement of U.S. power projection at the same time he endorsed increased dependence on oil from unstable areas.

As a result, a two-pronged strategy governs U.S. policy toward much of the world. One arm of this strategy is to secure more oil from the rest of the world, and the other is to enhance the capability to intervene. While one of these objectives arises from energy preoccupations and the other from security concerns, the upshot is a single direction for U.S. dominance in the 21st Century. It is this combination of strategies, more than anything else, that will anchor the United States’ international relations for years to come.

(Michael T. Klare, author of Resource Wars: The New Landscape of Global Conflict and the forth-coming Petropolitics (Metropolis Books, 2004) is a professor of peace and world security studies at Hampshire College in Amherst, Mass and a member of the FPIF Advisory Committee.)

GLOBAL WARMING BACKGROUNDER
By Tom Athanasiou

(Editor’s Note: Excerpted from a briefing paper available in full at http://www.fpif.org/papers/03petropol/climate.html .)

The “climate talks” have two official faces: the Kyoto Protocol--which most newspaper-reading Americans know has been rudely rejected by the Bush administration--and the much less visible annual meetings, the “Conferences of the Parties,” at which the critical negotiations take place. What most Americans do not know is that the overall legal framework here is set by the UNFCCC, and that it, rather than Kyoto, is the reason the negotiations have held together.

There’s something else you must know about the UNFCCC--it divides the world’s nations into two, establishing this division as one between “Annex 1” and “non-Annex 1” countries (the first are listed in an annex to the main treaty). In so doing, it reflects the historic division between “developed” and “developing” countries, though in an odd and imperfect way that reflects the political compromises that underlie the UNFCCC: Annex 1, for example, excludes, in spite of their wealth and high per capita emissions, the “Asian Tigers” and other relatively rich developing countries such as Israel and the Mid-East OPEC nations.

This division has had consequences. In the negotiations leading up to the Earth Summit, the European Union and many other countries favored the establishment of national “targets and timetables” for the reductions of greenhouse gases. But these national caps--quantified emission limits of exactly the type embodied in the subsequent Kyoto Protocol--were adamantly resisted by the U.S. and had to be thrown overboard. The result, which we’ve inherited, was a viable framework treaty (good), without teeth (bad).

Soon, however, it became quite evident that, without targets and timetables, the Annex 1 countries’ commitment to reduce their emissions back to 1990 levels by the year 2000 was largely symbolic. And with the scientific evidence for climate change becoming increasingly convincing, the need for binding targets had become clear. However, and herein lies the rub, the vast disparity in per-capita levels of greenhouse gas emissions (both historical and current) between the rich and poor countries meant that not all countries could be expected to take on targets. Thus, it was agreed, in a text called the “Berlin Mandate” at the first Conference of the Parties in 1995, that, initially, only the developed Annex I countries would have binding emission caps.

In the context of the climate negotiations, the Clinton administration had little choice but to agree to this. But at home in the U.S., where public knowledge of climate change was minimal, the fossil-fuel industry mounted a campaign to portray this mandate as “unfair” to the U.S. because it would have to pay to reduce emissions while large developing countries like India and China would not. In 1997, with the Kyoto negotiations on the horizon and the environmental community unable to effectively counter this message, the Senate voted 95-0 (the Byrd-Hagel Resolution) to assert that it would accept no treaty that did not also contain binding targets for the developing countries. In so doing, it effectively repudiated the Berlin Mandate and set the stage for an ongoing crisis in the negotiations, a crisis that is now coming to a head.

The U.S. response was twofold. First, Clinton and Gore lobbied hard for the inclusion in the Kyoto Protocol of “flexibility mechanisms” which would allow Annex 1 countries to reduce the cost of their emissions reductions. These include both Kyoto’s emission trading provisions, which allow high-emitting countries like the U.S. to buy emissions credits from countries with surplus allowances, and the Clean Development Mechanism, by which Annex 1 countries can invest in and obtain “credits” for carbon reduction projects hosted in non-Annex 1 countries. Both of these, by the way, are very long stories indeed. Second, once Kyoto was negotiated, Clinton never submitted it for ratification to the Senate, where, of course, it would have been promptly rejected.

By the rules of the Protocol, it only “enters into force” after it is ratified by at least 55 countries, including enough Annex 1 countries to account for 55% of combined 1990 Annex 1 emissions. With the U.S. rejection of the Protocol and its subsequent rejection by Australia, the only way this was possible was if all other Annex 1 countries ratified. Europe, Japan, and (somewhat surprisingly) Canada all did in fact do so, and the only country whose ratification is still required is Russia. However, knowing that they have effective veto power over the treaty, the Russians have been playing hard to get, and there are evidently both conflicts in Russia over ratification and covert efforts by the U.S. to persuade them not to.

Today, after the ninth Conference of Parties in Milan, there’s still widespread belief among climate experts that Russia will in fact ratify the Kyoto Protocol and that it will enter into force in the next year or so. Further, much of the climate community’s effort is now going into debates over “next steps,” over how to structure a post-Kyoto agreement that includes both developed and developing countries. This is an extremely important problem, and the debate is fascinating indeed, but progress has been made extremely difficult by the fact that the U.S., the world’s largest polluter by far, has rejected Kyoto and is not taking any significant action to reduce its emissions. Given this, the developing countries have refused to even discuss taking on quantified emissions targets similar to those of Annex 1 countries.

It’s widely recognized that a real solution to the climate problem will require that developing as well as developed countries reduce their emissions well below current per capita levels. It’s a monumental challenge, and with the Bush administration unwilling to engage, it is not clear how it can even be approached.

While the U.S. has been the center of resistance, the real enemy is larger, more diffuse, and more terrifying than even the Bush administration. It needs a name and “the carbon cartel,” though not ideal (it seems to imply an active, centralized conspiracy, when in fact it is far more) will do. The term, in any case, is useful to name the corporations, states, elites, institutions, and capital that are bound up with the logic and interests of not just oil, but the whole fossil sector.

Global warming may soon be the greatest challenge our species has ever faced. So far, unfortunately, this is not widely understood in either the U.S. (where the denialists are in power, and their allies control most of the media) or in the South (where the elites still generally consider global warming to be only a long-term problem). Nevertheless, the reality is slowly becoming clear: to the Europeans, who’ve just suffered a wave of killing weather, to the increasingly anxious scientists who, staring into their data sheets and simulations, are seeing a terrifying picture begin to clearly emerge, and to the activist community, which is finally finding its own way to the challenges of global warming.

These challenges are manifold, though for the purposes of simplicity, let’s just say that we desperately need a crash global clean-energy transition, and, indeed, “just and sustainable development.” Unfortunately, both remain largely rhetoric and dreams. And let’s add that, for the most part, and particularly in the South, the term “development” still conjures images of development-as-usual. And that this will no longer do.

It isn’t going to be easy to clear this up. The rich, after all, did not become so by developing “sustainably.” And development, or at any rate poverty reduction, from which it still derives its legitimacy, remains the top priority of the South. Consider that, according to a recent report from the London School of Hygiene and Tropical Medicine, the greenhouse body count has already reached 160,000 deaths a year. (The majority of these occur in Africa, Southeast Asia, and Latin America, where people are highly vulnerable to malnutrition, malaria, and diarrhea as hotter temperatures settle in and floods and droughts become more common.) It may seem a huge number, but to put it in perspective, note that the World Health Organization estimates that indoor air pollution alone causes 1.6 million deaths per year. That’s an even power of ten greater than the greenhouse body count, and in this case the killer is poverty pure and simple. Poverty, and with it murderously obsolete heating and cooking technologies.

And the Kyoto Protocol, even if the carbon cartel manages to kill it, must be seen as the first halting step in the construction of the most significant environmental and economic treaty of all time. Because as the climate regime becomes, as it must, a global regime, it will also become quite impossible for the global justice movement to proceed as if the greenhouse crisis and the climate treaty are of merely secondary importance. The challenge, now, is to find a way beyond the Kyoto Protocol, a way, eventually, to incorporate both the developing world and the U.S. into an effective and politically acceptable international climate regime. In this regard, two bits of jargon, “adequacy” and “equity,” must be understood, for between them they define and contain the heart of the problem.

“Adequacy,” in the dialects of the climate world, means facing the challenge of preventing a dangerous degree of global warming. It means that, whatever the science tells us, we cannot deny it, not even if we think that the political and social changes that will thereby be needed to stabilize the climate are “unrealistic.” It means that, even though a large amount of warming is already locked in, we must at all costs avoid crossing the line into a world in which the “impacts” of global warming are no longer “tolerable.”

“Equity,” of course, means justice. It means “just transitions,” in that the rich must pay to help impacted and vulnerable communities “adapt” to the impacts and changes that will soon be upon us (think flooded villages in the global South, or coal miners here in the U.S.). It means that those who are the most responsible for the warming--and this means, again, the rich--must pay to “mitigate” the emissions that cause the warming. And it means that, in a world where the oceans and the skies are clearly revealed as fragile and finite, that these “environmental spaces” must be fairly shared by all and protected as a global public good. It means that emission rights must ultimately be apportioned on the basis of equal per-capita rights.

(Tom Athanasiou is the Co-director of EcoEquity, the co-author of Dead Heat: Global Justice and Global Warming, the author of Divided Planet: The Ecology of Rich and Poor, and a regular contributor to Foreign Policy in Focus (www.fpif.org).)

FUELING CONFLICT
By Michael Renner

(Editor’s Note: Excerpted from a briefing paper available in full at http://www.fpif.org/papers/03petropol/war.html .)

More than any other commodity, oil is the lifeblood of modern economies and the engine of military machines. It is a source of enormous profit and political might. The major powers have gone to great lengths over the past century to secure access to it and influence the terms of its trade. In the pursuit of black gold, world leaders have established colonial outposts, supported dictatorial regimes that did their bidding, plotted against those who stood in the way, and militarized oil-rich regions with scant concern for the impact on local people or ecosystems. The first colonizers that jockeyed to divide the oil-rich Middle East between them were Britain and France. The United States soon joined the fray. The current U.S. occupation of Iraq is the latest chapter to draw international attention to the violent history of oil. But around the world, armed conflicts over the profits from oil development continually cause strife and personal loss.

To an extent unrivaled by any other nation on earth, the United States is addicted to oil. Much of the population regards unlimited consumption as a birthright. Subsidies actively nurture the habit of guzzling. Sprawling settlements and related dependence on motorized transport make high-volume energy use a day-to-day necessity. The U.S. economy remains far less energy efficient than Japan and industrialized countries in Europe.

Representing a mere 5% of global population, the United States claims 26% of the world’s oil use. U.S. oil consumption is projected to increase by one-third over the next two decades. But domestic oil production has been declining since 1970 and will continue to fall by a projected 12% over the next 20 years. The upshot is that U.S. dependence on imported oil, which has already risen from one-third in 1985 to more than half today, is set to climb to two-thirds by 2020.

Although the United States and other industrialized countries have made strenuous efforts to diversify their import sources, the Middle East, and specifically the Persian Gulf region, remains the world’s prime oil province. The Middle East accounts for about 30% of global oil production and more than 40% of oil exports. Its importance is bound to increase, given that about two-thirds of the planet’s known reserves are concentrated in the region.

The United States has gone to great lengths to maintain its domination over world oil during the past half-century. Washington has made particularly heavy investments in keeping the immensely oil-rich Persian Gulf region in its geopolitical orbit. It has done so by propping up client regimes with arms and credits, acquiring military bases, overthrowing or marginalizing those that stand in the way, influencing the routing of oil export pipelines, and exercising undisputed control over the sea-lanes through which much of the world’s oil is shipped.

In a number of developing countries, including Colombia, Sudan and, until recently, Angola, the revenues from oil production are fueling internal wars. In other countries, including Nigeria and Indonesia, oil and gas exploitation has led to disputes, protests, and repression, as domestic elites and foreign investors capture the bulk of the profits, while local communities are forced to shoulder the heavy social, economic, and environmental burdens associated with oil production.

Although the central characters in the violence change and each country’s situation varies, all these cases share a common element. As much as oil is the lifeblood for the entire world economy, control over oil serves the profit and power interests of small elites among governments and corporations. While the direct protagonists are Third World governments, warlords, and rebel forces, it is ultimately the high demand in industrialized countries that makes oil a resource worth battling over. Consuming countries, by and large, have callously ignored the violence and suffering this engenders in producer countries.

(Michael Renner is a Senior Researcher at the Worldwatch Institute and project director of the Institute’s annual Vital Signs book, a compilation of critical global trends. He is the author of The Anatomy of Resource Wars, a 2002 Worldwatch monograph.)

THE GLOBAL RECORD
By Terry Lynn Karl and Ian Gary

(Editor’s Note: Excerpted from a briefing paper available in full at http://www.fpif.org/papers/03petropol/development.html .)

The gap between the promise of petroleum wealth and the perversity of its performance is enormous. Study after study demonstrates that, as a group, countries dependent on oil as their leading export have performed worse than other developing countries on a variety of economic indicators; they have performed worse than they should have given their revenue streams; and poverty within their borders has been exacerbated rather than alleviated over the past two decades.

The scramble for African oil has raised expectations that petroleum will boost the standard of living of exporting countries in the Gulf of Guinea. As Ed Royce, the Chairman of the Subcommittee on Africa of the U.S. House of Representatives says: “African energy is critical to African development. It provides a revenue stream…to break the cycle of poverty that plagues the continent.” In West Africa the hopes of people watching new pipelines built through their communities or seeing the impressive installation of offshore platforms can be palpably felt. They believe that oil will bring jobs, food, schools, healthcare, agricultural support, and housing. “We were told by the company that we would have a new school, with books, and electricity and water,” a Cameroon village chief reported. But these hopes are not likely to be realized if new African oil producers repeat the dismal performance of other petro-states.

This briefing paper examines the disturbing record of oil-exporting developing countries and their failure to reduce poverty and deliver on the promises of oil. It examines the “paradox of plenty” characterizing these countries, drawing on specific examples from Africa.

The lived experience of oil-exporting countries over the past several decades tells a story which differs radically from the promise of petroleum. When taken as a group, all “rich” less developed countries dependent on oil exports have seen the living standards of their populations drop--and drop dramatically.

For most countries, including Algeria, Angola, Congo, Ecuador, Gabon, Iran, Iraq, Kuwait, Libya, Peru, Qatar, Saudi Arabia, and Trinidad Tobago, this development failure has been very severe, plunging real per capita incomes back to the levels of the 1970s and 1980s. For a few, most notably Nigeria and Venezuela, the failure to develop has been catastrophic; in these cases, real per capita income has plummeted to levels not seen before 1960. In Nigeria, which has received more than $340 billion in oil revenues, more than 70% of its population lives on less than a dollar a day, 43% lack sanitation and clean water, and infant mortality is among the highest in the world.

Even more worrisome, the gap between the expectations created by oil riches and the reality produced is a dangerous formula for disorder and war. Countries that depend upon oil exports, over time, are among the most economically troubled, the most authoritarian, and the most conflict-ridden states in the world today.

Negative development outcomes associated with petroleum and other minerals are known as the “resource curse.” Essentially, this refers to the inverse association between growth and natural resource abundance, especially minerals and oil. Countries that are resource poor (without petroleum) grew four times more rapidly than resource rich (with petroleum) countries between 1970-1993--despite the fact that they had half the savings. The greater the dependence on oil and mineral resources, the worse the growth performance, a finding that has been confirmed by economists in the World Bank and International Monetary Fund.

Under the current policy environment, here is how oil dependence hurts development:

• Oil booms raise expectations and increase appetites for spending.
• Governments dramatically increase public spending based on unrealistic revenue projections.
• Booms decrease the quality of public spending and encourage rent-seeking.
• The volatility of oil prices hinders growth, distribution and poverty alleviation.
• Booms encourage the loss of fiscal control and inflation, further hampering growth, equity and the alleviation of poverty.
• Foreign debt grows faster in oil-exporting countries, mortgaging the future.
• Non-oil productive activities, like manufacturing and agriculture, are adversely affected by the oil sector in a phenomenon called Dutch Disease.
• Petrodollars replace more stable and sustainable revenue streams, exacerbating the problems of development, transparency, and accountability.

The record of oil-exporting countries to date pro-vides a powerful lesson for assessing the prospects for poverty alleviation in countries dependent on oil revenues. The message is clear: If oil is exploited as it has been in the past, that is, if revenues continue to lack transparency and accountability in their management, the results seem only too evident--and too grim.

If oil booms are to produce better results in Africa, the Caucasus, and other oil-dependent regions and countries, cycles of excess profiteering, rent seeking and boom-busts must be broken--or not permitted to start. For this to occur, powerful actors need to change some of their standard operating procedures. Had all the major players in the oil story behaved differently earlier--had international companies, their home governments, and banks insisted upon fair shares for poverty-stricken oil-exporting countries, transparent contracts, and transparent and fair revenue management, had governments and domestic private sectors been required to be more accountable to their publics, and had publics been more organized and informed--then the outcomes could be different. Oil revenues need to be closely monitored and fairly shared in order to turn them into positive development outcomes, hence the importance of campaigns to “Publish What You Pay” and to bring transparency and fairness to the industry. If the incentive structure currently surrounding huge oil rents is not changed, business as usual will continue. And the consequences for the poor will continue to be disastrous.

(Terry Lynn Karl is Professor of Political Science and Senior Fellow, Institute for International Studies, Stanford University. Ian Gary is Strategic Issues Adviser for Africa with Catholic Relief Services. They wrote this paper for Foreign Policy In Focus (online at www.fpif.org).)

TOWARD A GLOBAL ENERGY TRANSITION
By Ross Gelbspan

(Editor’s Note: Excerpted from a briefing paper available in full at http://www.fpif.org/papers/03petropol/alternatives.html .)

This paper details a plan with a set of three interactive and mutually reinforcing strategies designed to reduce the world’s use of carbon fuels by at least 70%, and at the same time, create millions of jobs around the world, especially in developing countries. The plan is driven by concerns that global climate change is progressing far more rapidly than scientists anticipated even a few years ago.

To control the escalating pace of change and to allow the climate to re-stabilize, humanity has to cut its burning of fossil fuels by at least 70% in a very short time. That is the consensus of more than 2,000 scientists from 100 countries reporting to the UN-sponsored Intergovernmental Panel on Climate Change in the largest and most rigorously peer-reviewed scientific collaboration in history.

The urgency of the threat is spelled out in two other recent peer-reviewed studies corroborating the UN panel’s findings. One focuses on environmental impacts, the other on future energy consumption.

In 2001, researchers at the Hadley Center, Britain’s principle climate research institute, found that the climate will change 50% more quickly than was previously assumed. That is because earlier computer models calculated the impacts of a warming atmosphere on a relatively static biosphere. But when they factored in the warming that has already taken place, they found that the rate of change is compounding. They project that most of the world’s forests will begin to turn from sinks to sources--dying off and emitting carbon--by around 2040.

The other study is equally troubling. Eleven researchers found several years ago that unless the world is getting half its energy from non-carbon sources by 2018, we will be locked into an inevitable doubling--and possible tripling--of pre-industrial carbon dioxide (CO2) levels later in this century. A follow-up study by many of the same researchers, published in Science in November 2002, calls for a crash program to develop a carbon-free energy economy. Using conservative projections of future energy use, the researchers found that within 50 years humanity will need to be generating at least three times more energy from non-carbon sources than the world currently produces from fossil fuels to avoid a catastrophic build-up of atmospheric CO2 later in this century.

The science is taken very seriously outside the United States. In other countries, hardly anybody debates whether human activities are seriously affecting the climate. The debates are about policy choices, such as how to change energy delivery structures without wrecking national economies. The agreement on the urgency of the climate threat is evident in the responses in Europe. Holland has completed a plan to cut emissions by 80% in the next 40 years. The United Kingdom has committed itself to 60% reductions in 50 years. Germany is planning for 50% cuts in 50 years.

By contrast, the White House has become the East Coast branch office of ExxonMobil and Peabody coal, and climate change has become the pre-eminent case study in the contamination of the U.S. political system by money.

Two years ago, U.S. President George W. Bush reneged on a campaign promise to cap carbon emissions from coal-burning power plants. He then unveiled his administration’s energy plan, which is basically a shortcut to climate hell. In a truly Orwellian stroke, the White House excised all references to the dangers of climate change on the EPA’s website in mid-2003. Finally, Bush withdrew the United States from the Kyoto climate negotiations, and the administration’s chief climate negotiator declared that the United States would not engage in the Kyoto process for at least 10 years.

However, there may be an approach that could address our increasingly inflamed atmosphere and our reluctant political leadership as well. It is provisionally called the World Energy Modernization Plan. This plan was developed by an ad hoc, informal group of about 15 energy company presidents, economists, energy policy experts and others who met at the Center for Health and the Global Environment at Harvard Medical School.

The plan involves three interacting strategies. One is a subsidy switch, in which industrial countries would eliminate government subsidies for fossil fuels and establish equivalent subsidies for renewable, non-car-bon energy technologies. Another is a clean energy transfer fund, which entails creating a pool of money on the order of $300 billion a year to provide renewable energy technologies to developing countries. The last one is a progressively more stringent fossil fuel efficiency standard that rises by 5% per year; its adoption, perhaps within the Kyoto framework, could be complemented with the emissions trading mechanism to help nations meet it.

While each of these strategies can be viewed as a stand-alone policy, they are better under-stood as a set of interactive policies that could speed the energy transition far more rapidly than if they were implemented in piecemeal fashion.

We are proposing that in the industrial countries those subsidies be withdrawn from fossil fuels and equivalent subsidies be established for renewable energy sources. A small portion of the U.S. subsidies must be used to retrain or buyout the nation’s approximately 50,000 coal miners. But the lions’ share of the subsidies would still be intended for the major oil companies to retrain their workers and re-tool to become aggressive developers of fuel cells, wind farms, and solar systems. In other words, we envision the subsidies as a tool to help oil companies transform themselves into renewable energy companies.

The second element of the plan involves the creation of a new $300-billion-a-year fund to help transfer renewable energy resources to developing countries. Virtually all poor countries would love to go solar; virtually none can afford it. Among them are countries with the smoggiest cities in the world today, such as China, Mexico, Thailand, and Chile.

The third and unifying regulatory strategy of the plan calls on the parties to Kyoto to subordinate the ineffectual and inequitable system of international emissions trading to a simple and equitable fossil fuel efficiency standard that becomes 5% more stringent each year. This mechanism, if incorporated into the Kyoto Protocol, would harmonize and guide the global energy transition in a way that emissions trading cannot.

If the subsidy switch in industrial nations were implemented in tandem with the progressive fossil fuel efficiency standard, we believe those two policies alone could jumpstart an energy transition in the North. But, as we know, the problem is global in scope. The transfer fund addresses the fact that even if the countries of the North dramatically reduce emissions, those cuts would be overwhelmed by the coming pulse of carbon from India, China, Mexico, and Nigeria.

(Ross Gelbspan is a former reporter for the Boston Globe and the author of The Heat Is On: The High Stakes Battle over Earth’s Threatened Climate (www.heatisonline.org) His latest book, Fevered Planet, is scheduled for publication in 2004 (Basic Books).)

COMBATING THE NATURAL RESOURCE CURSE WITH CITIZEN REVENUE DISTRIBUTION FUNDS: OIL AND THE CASE OF IRAQ
By Thomas I. Palley

(Editor’s Note: Excerpted from a new special; report available in full at http://www.fpif.org/papers/ordf2003.html .)

In a New York Times op-ed earlier this year (April 9, 2003), Steve Clemons of the New America Foundation has proposed that Iraq establish an Alaska-style oil fund that would pay annual dividends to the citizens of Iraq. In Alaska, revenues from oil leases have been invested in a permanent fund, which has grown to $23.5 billion in 2002; part of the fund's income is now distributed directly to Alaskans as a dividend. Clemons has proposed that a similar fund be set up in Iraq. The proposal is that Iraq should save a fixed portion of its oil revenues, which would be invested in a portfolio of international equities and bonds. This portfolio would effectively become the national trust fund, and the fund's income would be distributed to Iraqi citizens on an annual basis. Over time, the fund would grow as a result of continuing saving of part of oil revenues, and so too would the dividend distribution.

The current paper proposes a modification of this proposal, suggesting the creation of an Iraq oil revenue trust fund that would directly distribute oil revenues to Iraqi citizens. Thus, rather than saving a share of revenues in a trust fund and building up the fund over time, a significant portion of oil revenues would be immediately and directly paid to Iraq's citizens. As an opening suggestion, the paper proposes that 25% of revenues be distributed--though this figure is amenable to change.

In addition, the paper proposes the establishment of a companion fund that would distribute a share of oil revenues to provincial and local governments. This second fund can ensure a fair regional distribution of revenues, thereby reducing the potential for regional grievances, which can lead to civil war. This is a major concern in Iraq, which is afflicted by significant regional divisions.

The reason for this more robust approach to oil revenue distribution is that there is an urgent need for political and economic reform in Iraq, and this need cannot be met under the more gradual Alaska oil fund approach. The Alaska fund was established in Alaska, a state with high governance quality. The gradual accumulation of revenues has over the past 25 years built up the Alaska portfolio, and as the portfolio has grown, so too has the dividend distribution. This has had the intended effect of provisioning for the future, and building citizen ownership and engagement. However, whereas a slow process of accumulation was right for Alaska, it is not right for Iraq, which starts from a condition of economic collapse, and with a history of autocratic, kleptocratic governance. Consequently, an accelerated transformation is needed in Iraq . This bespeaks the need for large-scale direct distribution of oil revenues, rather than gradual intermediated distribution done via a trust fund financed by financial asset accumulation.

An oil revenue distribution fund stands to benefit Iraq. But the arguments for directly distributing revenues to citizens and provincial and local governments also apply to other natural resource rich developing countries. Owing to weak, undemocratic governance and cultures of corruption, these countries are often afflicted by the natural resource curse, whereby oil fosters economic stagnation and civil conflict rather than growth and development. Developing efficient states with good governance takes a long time. Developing oil fields and building pipelines happens far faster. Oil revenue distribution funds and transparency measures can be put in place immediately. They are policies one might want even if quality of governance is high--as in Alaska. They are doubly desirable when governance is weak, and the need for institutions to handle oil revenues is immediate.

More than this, revenue distribution funds change the structure of the economy and incentives in ways that can trigger lasting economic and political change. Not only do they diminish the natural resource curse with its risk of stagnation and civil conflict, they also institute affirmative changes that (i) empower citizens to take charge of the process of economic growth, and (ii) give citizens an incentive to engage in democratic politics.

Finally, it is critical that any decision to implement an oil revenue distribution fund be taken by the Iraqi people, through legitimate, democratic institutions. Paul Bremer, the top U.S. administrator in Iraq , has recently expressed support for such a fund (New York Times, July 13, 2003). Whereas it is appropriate for Bremer to contemplate some form of temporary distribution during the transition to constitutional democracy in Iraq, any permanent arrangement must be the decision of the Iraqi people. This is the only way an arrangement can have lasting political legitimacy.

(Thomas I. Palley is a frequent contributor to Foreign Policy in Focus (www.fpif.org). This paper is forthcoming in Challenge, March 2004. Thanks to M.E. Sharpe for permission to use the material. The views expressed in this paper are those of the author.)

II. Letters and Comments

KUDOS

Re: Saddam’s Arrest Raises Troubling Questions

Another great article...kudos to Stephen Zunes and FPIF...I can only hope the word keeps spreading!

- Kenneth Liberatore <halosixteen@msn.com>

DEPRESSING TALE

Re: Afghanistan Between War and Reconstruction

An interesting article but one that tells a depressing tale. The time frame for this sorry place for change (average 25 years) as outlined in the article would suggest to me that it is far too long to hold the interest of the U.S.. Ergo the Taliban will return. Fanatics can always out-wait opportunists.

Why is it that the U.S. thinks militarily rather than policing? There was actually nothing intrinsically different about the Taliban regime that doesn't exist within other regimes supported by the U.S.--namely Saudi Arabia and Kuwait. If Osama was the problem then common sense would have supported the role of international police in the hunt for him. It would have been cheaper and far more effective. Nation building was, I suspect, never on the agenda.

- David Sheehan <davidsheehan1@hotmail.com>

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