Citizen Dividends & Removing Fossil Fuel Subsidies

OpenOil considers that a key element of a better run oil industry worldwide would be serious consideration of a policy of direct citizen dividends. A paper modelling a dividend in Iraq has been published by the Center for Global Development, the leading think tank in Washington for development policy, and drafts are in circulation for South Sudan and Egypt.

Although the dividend – or “oil to cash” as it is sometimes called – is gaining ground in policy debate, it has normally been considered only in the case of countries which are significant energy exporters. But Egypt also presents an opportunity to marry the governance and transparency that would be achieved with a citizen dividend to another critical issue: cutting fossil fuel subsidies which will cost $600 billion in 2013 and, in many countries, take up more government spending than public education or healthcare.

Openoil believes that the best solution to end burdensome fossil fuel subisides is a Dividend Subsidy Swap (DSS) . A model of a possible DSS in Egypt is about to be published by the Center for Global Development. We are currently also researching a global DSS for up to 34 countries.

 Because energy subsidies are in fact so “pro-rich” a DSS can achieve all of the following at the same time:

  • removing subsidies completely
  • leaving the poorer half of the population better off
  • bringing money into the public treasury

Other non-financial benefits would be:

  • increased energy efficiency leading to less pollution and lower carbon emissions
  • greater mobilisation of public interest and opinion around government accountability and resource governance
  • in some contexts, the opportunity to make the cash dividend smart and digital in a way which can then integrate with other development initiatives, increase individual choice and provide invaluable feedb

Continuing protests against subsidy reforms in countries like Nigeria and Jordan, have shown that current reform strategies are problematic. Compared to other strategies, the DSS proposes the distribution of cash at a level that is equal to the estimated welfare impact for the the median person. All attempts at reforming fossil fuel subsidies so far either fail to liberalise prices fully or do not adequately deal with protection of the poor, or public perceptions of mismanagment. We believe that tying subsidy removals to universal cash dividends can do this if the level of the dividend and price increases are carefully designed based on extensive empirical data.

To drive DDS reforms we propose:

  • extensive field research on use of energy by income groups to allow the level of a dividend to target the median user in each country accurately

  • a series of country studies researching the complex political economy of each target country by mapping price rises to fiscal savings, potential levels of dividend and the politics and logistics of swapping out subsidies for untargeted cash transfers

OpenOil’s founder, Johnny West, has begun work on a book designed to introduce the concept of the dividend to a general reading audience, setting it against the history of other initiatives designed to address Resource Curse issues. Entitled Give It Back, publication is scheduled for 2013. Comments on the Introduction are welcome!

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