| Oil's Universal Appeal |
April 2017 Sarah Miller
An embattled oil and gas industry increasingly finds itself at the center of social and political debates in which it would once have scarcely featured at all. The latest example is the universal basic income (UBI), a concept that has been much associated with robotics and artificial intelligence, but almost never, until recently, with fossil fuels. Proposals for a "revenue-neutral" carbon tax that would be returned as equal rebates to all citizens establishes just that oil-to-UBI link. It's a curious sort of inversion of the annual dividend from Alaska's oil fund that the US state has long given its citizens, but may not be able to easily afford for much longer. The carbon-tax proposal is a political long-shot, but has some notable supporters, and would hard-wire, should it pass, both a steadily rising carbon cost and a basic minimum income into the US political economy.
Virtually everyone is now familiar with the arguments for and against a carbon tax, with "revenue neutrality" considered a vital element by advocates of all stripes, including Exxon Mobil and its former head, now US Secretary of State, Rex Tillerson. The idea most recently resurfaced in US politics shortly after the inauguration of President Donald Trump, via a proposal from the Climate Leadership Council (CLC), a group of conservative senior statesmen and economists led by former Republican Secretaries of State James Baker and George Shultz and former Treasury Secretary Henry Paulson.
The CLC is proposing a revenue-neutral carbon tax rising steadily from an initial $40 per ton of carbon emitted. The proceeds would be rebated through checks sent out quarterly to every adult and child with a US social security number. At the starting level of $40/ton, a family of four would receive a rebate of $2,000 annually, implying $500 per person.
In order to prevent the tax from penalizing US manufacturers, imports from countries "without similar carbon pricing schemes" would be taxed, and exporters to such countries would get back any carbon tax they had paid on exported products -- a suggestion vaguely reminiscent of Republican House Speaker Paul Ryan's proposed border adjustment tax ( WEO Mar.21'17). As a perhaps more fulsome incentive to Republicans to go along, "much of the EPA's regulatory authority over carbon dioxide emissions would be phased out, including an outright repeal of the Clean Power Plan," the CLC suggests.
The Trump administration has already ordered the Environmental Protection Agency (EPA) to review -- and probably weaken or dump -- the Clean Power Plan the agency developed under his predecessor, Barack Obama. But this regulatory path to change could be tied up in the courts for years. What the CLC is proposing would presumably see the regulations repealed quickly and cleanly by Congress as part of a new law that would provide a tax as an alternative means of reducing carbon emissions.
The rebate would be progressive in social terms, as an estimated two-thirds or more of households, most of them relatively low income, would benefit on a net basis, while one-third -- made up mainly of wealthier people -- would pay more than they get back in the rebate. This, and the prospect of a price on carbon that eluded the Obama administration due to Republican opposition, could win Democratic support for the CLC proposal. A similar plan is being pushed by the Citizens' Climate Lobby, another US group with more liberal credentials and an advisory board including former Obama administration Energy Secretary Steven Chu and famed climate scientist James Hansen, as well as CLC member Shultz.
Gaining Currency
The phrase "universal basic income" -- or its equivalents of "basic minimum income" or "citizen's income" -- has rarely featured in Washington discussions of a revenue-neutral carbon tax. But more than a few analysts have noted that the flat rebate proposed by both CLC and the Citizen's Climate Lobby would effectively be a UBI, a concept only slightly less pervasive in political debate worldwide than carbon taxes. In France, Socialist Party presidential candidate Benoit Hamon has made a €700-€800 per year UBI and an associated tax on robotics a central plank in his platform, as a step to mitigate the feared impact on jobs of increasingly smart machines. Switzerland voted on -- and resoundingly rejected -- a proposal last year for a UBI of roughly $2,500/yr for adults, and both the center-left in Canada and the center-right in Finland are also experimenting with variants on the theme.
Supporters of UBI going back in history range from US revolutionary propagandist Thomas Paine to 20th century economists Friedrich Hayek and Milton Friedman, both of whom were strongly associated with neoliberalism. More recently, Martin Ford, author of the 2015 bestseller Rise of the Robots, has advocated a basic guaranteed income to counter the loss of both individual livelihoods -- and the personal consumption needed to support the economy -- as automation erases jobs. Not everyone agrees with Ford even on his basic premise that robotics and artificial intelligence (AI) threaten vast numbers of jobs, much less that a UBI is the best response -- Trump's new Treasury Secretary Steve Mnuchin, for example, caused a stir in tech circles last month when he told an interviewer that he doesn't expect AI to take American jobs for "50 or 100 more years."
One of the intriguing aspects of CLC's carbon-tax rebate is that it could put what amounts to a UBI in place without anyone in US political circles having to see it that way. Even so, are Trump and a Republican-controlled Congress likely to include a carbon tax in any corporate and personal income tax reform plan they develop? And if they are, would they link it to rebates to all US citizens? After landing in February with what might generously be called a soft thud rather than a bang, the CLC proposal resurfaced in early April, when administration officials told reporters a carbon tax was being considered as a means to offset cuts in income tax rates. But Trump quickly tweeted that he would "not support or endorse a carbon tax," and the White House press office stated in more nuanced fashion that "as of now" a carbon tax is "not under consideration."
As these comments suggest, a carbon tax is unlikely to figure in any comprehensive tax reform plan that's aimed at getting broad Republican support with little or no Democratic backing. Where it could more plausibly emerge is if a "Republican-only" approach stalls, and the administration tries instead to come up with a bipartisan tax bill that would appeal to members of both parties.
Not only are administration figures, including Tillerson, on record as supporting such a tax, but it might help get around a legal requirement for carbon control efforts that the Supreme Court has said is implied by the long-standing Clean Air Act, while still allowing Republicans to shed the Clean Power Plan they so dislike. Of course, using the tax to make up for revenue lost by lowering corporate income tax rates, while potentially revenue-neutral, would preclude also returning the revenue as a flat rebate -- and hence sever the link to a UBI.
The rebate idea could nonetheless catch hold, particularly if the case is successfully made that relying on a carbon tax to fund corporate tax breaks is both regressive and leaves government finances captive to the vagaries associated with the ongoing energy transition from fossil fuels to renewables. Variability in personal rebates, resulting from unpredictable shifts in income from the carbon tax that funds them, might be easier to deal with both politically and practically, as Alaska's experience shows.
The odds are indeed long against passage anytime soon of the CLC plan in its proposed form, with the implied backdoor adoption of a minimum income. Still, it's now an idea swirling in US political circles and worth watching, given the potentially huge impact it could have on the energy sector.
Sarah Miller is a former editor of Petroleum Intelligence Weekly, World Gas Intelligence and Energy Compass.
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