As we’ve shared the idea of Oil to Cash—that a portion of resource revenues be given directly to citizens in a regular, transparent, and universal dividend—we’ve heard a lot of concerns, such as that it’s impractical or that it’ll make people lazy. We deal with the ten most common objections in this working paper, which previews Chapter Five of our book, Oil to Cash: Fighting the Resource Curse through Cash Transfers. The book, which I’m writing with Stephanie Majerowicz and Caroline Lambert, is due out in 2014. (If you’re reading this you’ll be getting an invitation to the launch party!)
We are very happy to engage those who’d like to help us think through concerns, design issues, and potential effects. But one of the unexpected sources of skepticism has been from some quarters of the transparency community. More specifically, I have been surprised by the number of people who seem to view Oil to Cash as a competing alternative to the Extractive Industries Transparency Initiative (EITI), Publish What You Pay (PWYP), establishing sovereign wealth funds, or other efforts to engage citizens in promoting transparency and good governance in the extractive sectors. I’m surprised since I always viewed a direct dividend as fully complementary to these other (terrific) ideas. And I don’t mean that in the sense of ‘we all have the same goals so let’s just be nice to each other.’ I think of Oil to Cash as working on both the supply and demand for information and good governance in resource income—and thus supportive of transparency initiatives. Here’s why:
EITI makes publicly available data on resource revenues flowing into public coffers. PWYP does a similar thing for the other end of these transactions, funds flowing out of oil and mining companies. These initiatives are huge leaps forward from the bad old days when no one knew anything about resource flows.
But while EITI and PWYP provide public information as a supply response, on their own they can only do so much to create demand for that information or its use (which they often do through support for civil society organizations). It’s wonderful, for example, that Liberians can go to this website to see mining contracts and payment information. But how many Liberians actually do this? And if they did, then what is supposed to happen? And what about citizens that live in countries with even fewer mechanisms to make their voices heard?
Here’s where Oil to Cash is potentially complementary. If citizens know that their government’s decisions and actions on resource revenues (i.e., Who gets concessions? What’s the price structure? Are the payments received correct? What’s happening with the money?) will directly affect the amount of cash they receive in their pockets, they have a greater incentive to pay attention. They aren’t just doing a public service, but lobbying for their own wallets. In short, a dividend should create a broader and stronger constituency for sound management. This will likely include people who may want to support abstract notions of good governance or fairness, but feel too busy (or are too poor) to act on it.
Indeed, this is exactly what’s happened in Alaska. The Alaska Permanent Fund dividend, which pays each state resident an equal share of half of the fund’s five-year average profits (it was $900 in 2013), has created a tremendous amount of public discussion and attention on fiscal affairs. This was Governor Jay Hammond’s vision when, over many of the same objections we hear today about Oil to Cash, he launched the dividend in 1982.
In the developing country context, we hope that an Oil to Cash-like dividend will give citizens a concrete reason to utilize EITI data and a sharp motivation to push for better use of national wealth. If things go badly, if, say, the dividend falls from $50 to $25, this should force some tough questions and require a clear explanation. If a government sets up a sovereign wealth fund or other ring-fenced account (which is ideally an integral part of the Oil to Cash model), the dividend should embolden citizens to want to know what the fund is doing with the money. Absent any mechanism like Oil to Cash, there’s little to stop governments from setting up paper structures, raiding the account, or simply changing the rules as they like (see, e.g., Chad’s pipeline escrow account, Nigeria’s excess crude account, Angola’s sovereign wealth fund, etc.).
EITI, PWYP, and other efforts have created, in many countries, a vitally important window into the black box of the budget and the workings of the oil sector. Oil to Cash creates a reason for regular citizens to look inside that window and to speak up if they don’t like what they see. For the troops already fighting the good fight over resource governance against hugely powerful political and commercial forces, we hope that a dividend will not march against them but will instead swell their ranks.
Authors: Todd Moss View Profile
With this week’s release of a major climate adaptation plan draft from California's Natural Resources Agency, the state continues to take bold steps to address climate change and cut pollution using a “research, reduce and adapt” approach.
The winning trilogy:
Conduct Thorough Research
As EDF knows, good policy is grounded in science. National and international reports warn us of the dire consequences of climate change, and on the local level, research shows California is particularly vulnerable to its impacts. The first step in addressing any problem is gathering the facts, which is why reports from the Climate Action Team (CAT) dive into California specific climate impacts and science on mitigation and adaptation.
Another component of climate research is looking at the hard numbers. How much carbon pollution are large facilities in California emitting? This data is released annually by the Air Resources Board and the US EPA. As recent numbers show, emissions at most of these facilities have been decreasing since 2008, but the state still has a lot work to do to reduce its overall emissions, especially after the closing of San Onofre Nuclear Generating Station.
Reduce Greenhouse Gas Emissions
Once policy makers are armed with the science and hard data, they must take action. The CAT’s first report led to the passage of AB 32, California's Global Warming Solutions Act, which aims to reduce the state’s greenhouse gas emissions to 1990 levels by 2020. The 2008 Scoping Plan gave a broad overview of how California will use different policies to meet this target, and last month EDF and other stakeholders submitted comments to the 5 year update draft of the Scoping Plan.
This update noted that California is on track to meet its 2020 target, and that the state should focus on setting a new reduction target for 2030 that will set us on the path to reduce greenhouse gas emissions 80% below 1990 levels by 2050. A second draft of this updated Scoping Plan is expected in late January.
Adapt to a Changing Climate
While reducing emissions to avoid catastrophic effects is absolutely critical, climate change is now a reality and some costly and damaging impacts are unavoidable. That’s why in 2009 California became the first state to develop a comprehensive plan for adapting and living with expected climate impacts including drought, wildfires, rising sea levels and water shortage.
The draft 5-year update of the adaptation plan, released this week, looks at the ways we will need to adapt to things like changing water patterns, more hot days and increased demand on our electricity system. In addition, the Natural Resources Agency noted the need to better understand impacts on wildlife and habitats, and assess the adequacy of our emergency response systems.
While the science keeps evolving, the need for adaptation to increased impacts keeps growing. And until the global trajectory of carbon pollution reverses, we must continue to push for innovative emission reducing policies.
This trilogy of interlocking strategies — research, reduction and adaptation — provides California with a solid foundation to continue its groundbreaking leadership on climate change.
Millions of Americans are losing their health insurance policies because of the Affordable Care Act. ACA supporters claim the cancelled plans were "subpar." But in fact, many or most cancelled plans simply did not fit the ACA's arbitrary cookie-cutter standards; the ACA forces insurers to offer sameness, not quality. To understand how, imagine a school where 59, 71, 82, and 90 are passing grades-but 66, 73, 85, and 98 are failing (subpar) grades. Ponder that for a moment, and ask yourself whether you can discern any logic. No? Welcome to the ACA School.
The millions losing their individual policies now will be joined in 2014 by tens of millions who will lose their employer-based policies for the same reason. And for many, the brand-new policies currently offered will be cancelled in 2015 or 2016 because the ACA's sameness standards are a moving target. An unknown number of Americans will now face a permanent cycle of annual or biennial cancellation and have to search for a new policy because of the ACA's bizarre grading system.
By now, many are familiar with a few of the ACA's "subpar" definitions. In the individual and small-group markets, for example, every ACA-compliant plan must cover officially defined essential health benefits or be deemed subpar: A 62-year-old woman's plan must cover prostate screenings; her son's plan must cover pap smears; and an elderly nun must be insured against pregnancy costs. But the ACA's mystery grading system is even more surreal.
It is in the realm of actuarial value (AV) requirements where the law demands pointless standardization. AV measures the extent to which a policy covers the average enrollee's medical expenses. On average, for example, a plan with an AV of 63 percent covers 63 percent of enrollees' medical costs.
All ACA-compliant plans must fit within four "metallic" bands. A platinum plan covers around 90 percent of an enrollee's costs, with a 2 percent tolerance in either direction. Thus, a platinum plan covers between 88 and 92 percent of costs. A less expensive gold plan covers between 78 and 82 percent of expenses. A silver plan's AV falls between 68 and 72 percent. Finally, bronze plans cover between 58 and 62 percent.
A plan offered in 2013 can have any AV, but come January 1, 2014, all plans must fall within those four narrow metallic bands. Therefore, a plan that covers 59 percent of medical expenses is okay, because it's within the bronze band. But a plan that covers 96 percent of expenses is unacceptable because its coverage is too generous; it is, by official rhetoric, subpar, substandard, bad insurance.
Imagine a school where 88 to 92 is an A, 78 to 82 is a B, 68 to 72 is a C, 58 to 62 is a D, and everything else is an F. So, 59, 71, 82, and 90 are passing grades. The student who gets a 23 fails, as one might expect. But so do pupils who get 66, 73, 85, or 98. This school is run by a domineering art teacher who provides exactly four crayons, and students dare not color outside the lines.
This same logic applies with the ACA. If you like your plan, you can keep your plan-provided that the AV is 59 (bronze), 71 (silver), 82 (gold), or 90 (platinum). But if your plan covers 66 percent of your expenses, or 73, 85, or even 98, you can't keep it. You are cancelled. It is bad, subpar insurance, and you go to detention hall (read: Healthcare.gov) indefinitely.
One of us (Pat) works with a small employer whose insurance policy has a 96.9 percent AV. The employer pays 100 percent of the employees' premiums. The ACA views this plan as subpar because it pays too high a percentage of the employees' medical costs. To be ACA-compliant, this group will must now provide fewer benefits. When employees get sick, the ACA insists that they face higher out-of-pocket costs.
Think of Pat's client as the student with the highest GPA in the class. Typically, this student would be valedictorian. At the ACA School, however, the art teacher/principal says sternly, "I'm deeply disappointed in your performance. Unless you want an F this semester, you had better answer more questions incorrectly and miss some deadlines. Consider this a warning."
If you think this is a problem just for the 5 percent of Americans (15 million plus) who get their insurance through the individual market, think again. Tens of millions of Americans who get their insurance through small-business plans are likely to experience similar waves of cancellations when their policies come up for renewal in late 2014 and in 2015. In 2016, the small-business rules will expand to include employers with up to 99 employees, meaning that all told, 40 to 50 million individuals (plus millions of family members) could be vulnerable.
And if you think this is a one-time problem, think again one more time. Let's say in late 2014, you lose your small business plan because its AV is 73-too high for silver and too low for gold. You switch to a compliant silver plan with an AV of 69. Before your plan comes up for renewal in 2015, however, many things beyond your control will change-ACA regulations will change the allowable deductibles and out-of-pocket maximums, and prices of medical goods and services will change, as they always do. So in 2015, your insurer does the calculation and finds that your year-old plan now has an AV of 67. The insurer will have little choice other than to cancel your new plan, and you'll have to hunt around for yet another one-and maybe a new doctor and hospital, too. As far as we can tell from the newly issued regulations, cancellation letters may become an annual event for tens of millions of people. If you like your policy, you can keep your policy-till next year. Period.
Why did Congress write the law this way? Answer that question for extra credit. But be careful. If you answer correctly, the higher grade might land you an F.
The US fiscal gap now stands at an estimated $205 trillion, or 10.3 percent of all future US GDP. Closing this gap is imperative, and requires a fiscal adjustment of an immediate and permanent 37 percent reduction in spending (apart from servicing official debt), an immediate and permanent 57 percent increase in all federal taxes, or some combination of the two. The necessary size of this adjustment increases the longer it is put off.
This grave picture of America’s fiscal position could effectively constitute a declaration of bankruptcy. But no one in Washington or on Wall Street would openly declare the United States to be broke. The question is, Why not?
According to a new study published by the Mercatus Center at George Mason University, the answer is that policymakers, financial analysts, the media, and even most economists focus on the wrong measure of fiscal sustainability—namely, the $12 trillion in official debt held by the public. The study’s author, Boston University professor of economics Laurence Kotlikoff, says that what gets reported as official debt is economically arbitrary and politically driven, leaving the vast majority of the government’s liabilities off the books.
To generate an accurate assessment of the US government’s fiscal sustainability, Kotlikoff uses both fiscal gap accounting, which discloses the amount of adjustment needed to restore sustainability, and generational accounting, which looks at the impact of current and implied policy on specific generations.
Below is a brief overview. To read the study in its entirety and learn more about its author, please see “Assessing Fiscal Sustainability.”
Conventional fiscal accounting points to debt held by the public—currently at about $12 trillion—as the measure of a country’s fiscal sustainability.
- This method treats all future government spending commitments, from defense to Social Security, differently from the official debt, and has created a yawning discrepancy in the official-versus-actual measure of the US fiscal gap.
- For example, simply adding Social Security’s unfunded liability ($23 trillion) to official debt ($12 trillion) and properly accounting for the $2.6 trillion of Social Security trust fund assets would put the government’s official debt at over $37 trillion—more than twice US GDP ($17 trillion)—raising the US debt-to-GDP ratio above Greece’s (1.7).
Achieving fiscal sustainability via generationally fair means requires an understanding of the overall adjustment needed to close the fiscal gap (fiscal gap accounting), and how much more any one generation will pay if another generation pays less (generational accounting).
- Applying fiscal gap accounting, the study finds that the US official debt is just 6 percent of the federal government’s true fiscal gap of $205 trillion.
- Applying generational accounting, the study finds that placing the burden of the fiscal gap solely on unborn generations would require:
- Giving all future American children a bill of $420,600, which would rise as the expected wages of each new generation rose.
- Taxing future generations, on average, roughly 60 cents of every dollar they earn, net of government transfers received.
The fiscal gap already has had a real impact on national savings, income, and net domestic investment.
- In 1950, national saving and investment rates were 14 percent; today, they are 2 percent and 4 percent, respectively.
- These declines have reduced the growth in real wages and dampened the increase in living standards.
Past attempts by government agencies to do long-term fiscal accounting were quashed when the analyses began to reveal an enormous long-term fiscal shortfall. This suggests that policymakers are unlikely to provide the public with long-term fiscal gap analyses unless required to do so.
- The study supports the use of generational accounting that presents debt as the net tax liability (taxes less transfer payments) for people born in different years.
- More than 700 economists, including 12 Nobel laureates, have endorsed the bipartisan Inform Act (H.R. 2967), which would mandate that the Congressional Budget Office, the Office of Management and Budget, and the Government Accountability Office supplement—if not wholly replace—conventional fiscal accounting with fiscal gap and generational accounting, and do these analyses annually and for all proposed major fiscal legislation.
Iran said talks are advancing on a detailed plan to comply with a nuclear accord sealed last month, according to a Reuters report.
Discussions are proceeding in a "very smooth" manner between technical experts from Iran and counterparts from the five permanent U.N. Security Council member nations and Germany, said Hamid Baeedinejad, Tehran's senior delegate to the talks launched on Monday in Vienna, Austria.
"We are trying to have unified understanding of each and every measure," Baeedinejad said.
Iranian government insiders said the discussion, which also includes representatives from the International Atomic Energy Agency, would continue into Wednesday for an unscheduled third day.
Envoys, though, said this week's gathering appears unlikely to yield an agreement on when participants would begin observing the half-year interim accord they finalized last month, Agence France-Presse reported.
The pact, which has not yet taken effect, calls for Iran to implement a number of short-term nuclear restrictions, and for the six other negotiating countries to scale back economic pressure targeting the atomic effort. The six countries negotiating with Iran -- China, France, Germany, Russia, the United Kingdom and the United States -- hope the deal will help them win longer-term restrictions on Iranian activities widely suspected to be geared toward development of a nuclear-arms capacity.
Speaking on Wednesday, Iran's envoy to the U.N. nuclear watchdog agency said negotiators would "discuss" plans for an IAEA trip to the Gchine uranium mine, Reuters reported.
Iran pledged in a separate deal to grant international auditors "managed access" to the site, enabling personnel to monitor how much material the nation is extracting.
According to the Institute for Science and International Security in Washington, such oversight would make it "harder for Iran to generate a secret stock of natural uranium that could be used in a clandestine, parallel (uranium-enrichment) centrifuge program."
Prospects for seeing a new U.S. defense authorization law before year's end may hinge on whether GOP senators drop demands for votes on amendments.
House-Senate negotiators on Monday announced they had reached agreement on a $607 billion measure that would set Defense Department spending policy for 2014. Supporters of the draft legislation want to see it fast-tracked so the House can vote on it before adjourning at the end of the week for a scheduled holiday recess, leaving the upper chamber to vote on an identical version of the bill next week.
However, some Republican senators are balking at the likelihood there will not be enough time for votes on amendments to the yearly national defense authorization legislation.
Speaking for the Republican side, Senate Armed Services Committee member Lindsey Graham (R-S.C.) told Defense News, "We all want amendments to the bill."
"There are people who don't want to do it," committee member John McCain (R-Ariz.) said to journalists. "There are people on my side and the Democrat side who are objecting to this process ... because they haven't got [votes on] amendments.
Conferees agreed to fold 79 amendments offered by senators into the bill, including a measure that would ban the use of U.S. funds to integrate Chinese antimissile technology with U.S. missile defense systems. If enacted, the mandate would likely mean Turkey would not be able to connect the missile system it is considering purchasing from China with the NATO ballistic missile shield, which is primarily based on U.S. technology.
However, a number of other nuclear and missile-related amendments did not make it into the legislation, including a measure with considerable Republican support that would require the Obama administration to brief Congress on compliance issues related to the Intermediate-Range Nuclear Forces Treaty with Russia.
It is not yet clear if Senate Minority Leader Mitch McConnell (R-Ky.) will back the conference committee's compromise bill.