By Owen Gaffney/ Stockholm
The challenge for politicians is to devise fair policies that protect people from the inevitable shocks
Russia’s war on Ukraine has sent shockwaves around the world. Oil prices have skyrocketed and food prices have soared, causing political instability. The last time food prices were this volatile, riots erupted across the Arab world and from Burkina Faso to Bangladesh. This time, the energy and food shock is happening against the backdrop of the Covid-19 pandemic. When will the shocks end?
They won’t. So, we can choose either resignation and despair, or a policy agenda to build social and political resilience against future shocks. Those are our options, and we had better start taking them seriously, because the shocks are likely to get worse. On top of geopolitical crises, the climate emergency will bring even greater disruptions, including ferocious floods, mega-droughts, and possibly even a simultaneous crop failure in key grain-producing regions worldwide. It is worth noting that India, the world’s second-largest wheat producer, recently banned exports as part of its response to a devastating heatwave this spring.
But here’s the thing: reducing vulnerability to shocks, for example, by embarking on energy and food revolutions, will also be disruptive. The energy system is the foundation of industrialised economies, and it needs to be overhauled to phase out fossil fuels within a few decades. Huge industries like coal and oil will have to contract, and then disappear. And agriculture, transportation, and other sectors will need to change radically to become more sustainable and resilient.
The challenge for politicians, then, is clear: to devise fair policies that protect people from the inevitable shocks.
One idea with significant potential is a Citizen’s Fund, which would follow a straightforward fee-and-dividend equation. Companies that emit greenhouse-gas emissions or extract natural resources would pay fees into the fund, which would then distribute equal payments to all citizens, creating an economic cushion during a period of transformation and beyond.
This is not just an idea. In 1976, the Republican governor of Alaska, Jay Hammond, established the Alaska Permanent Fund, which charges companies a fee to extract oil and then disburses the proceeds equally to all the state’s citizens. In 2021, each eligible Alaskan received $1,114 – not as a “welfare payment” but as a dividend from a state commons (in this case, a finite supply of oil). The largest dividend ever paid was during Republican Sarah Palin’s governorship in 2008, when every Alaskan enjoyed a windfall of $3,269.
In 2017, James Baker and George Shultz, two former Republican secretaries of state, proposed a similar plan for the whole United States, estimating that fees on carbon emissions would yield a dividend of $2,000 per year to every US household. With backing from 3,500 economists, their scheme has broad appeal not just among companies and environmental-advocacy groups but also (and more incredibly) across the political aisle.
The economics is simple. A fee on carbon drives down emissions by driving up the price of polluting. And though companies would pass on these costs to consumers, the wealthiest would be the hardest hit, because they are by far the biggest, fastest-growing source of emissions. The poorest, meanwhile, would gain the most from the dividend, because $2,000 means a lot more to a low-income household than it does to a high-income household. In the end, most people would come out ahead.
But given that food- and energy-price shocks tend to hit low-income cohorts the hardest, why make the dividend universal? The reason is that a policy of this scale needs both broad-based and lasting support, and people are far more likely to support a programme or policy if there is at least something in it for them.
Moreover, a Citizen’s Fund is not just a way to drive down emissions and provide an economic safety net for the clean-energy transition. It would also foster innovation and creativity, by providing a floor of support for the entrepreneurs and risk-takers we will need to transform our energy and food systems.
A Citizen’s Fund could also be expanded to include other global commons, including mining and other extractive industries, plastics, the ocean’s resources, and even knowledge, data, and networks. All involve shared commons – owned by all – that are exploited by businesses that should be required to pay for the negative externalities they create.
Of course, a universal basic dividend is not a panacea. It must be part of larger plan to build societies that are more resilient to shocks, including through greater efforts to redistribute wealth by means of progressive taxation and empowerment of workers. To that end, Earth4All, an initiative I co-lead, is developing a suite of novel proposals that we see as the most promising pathways to build cohesive societies that are better able to make long-term decisions for the benefit of the majority.
Our most important finding is perhaps the most obvious, but it is also easy to overlook. Whether we do the bare minimum to address the grand challenges or everything we can to build resilient societies, disruption and shocks are part of our future. Embracing disruption is thus the only option and a Citizen’s Fund becomes an obvious shock absorber. — Project Syndicate
• Owen Gaffney is an analyst at the Stockholm Resilience Centre and the Potsdam Institute for Climate Impact Research.
AMSTERDAM – Following weeks of intense negotiations, the European Union has agreed to revise its fiscal rules. The new rulebook will replace the Stability and Growth Pact (SGP) – which has been suspended since the start of the COVID-19 pandemic – and modernize the bloc’s 25-year-old fiscal framework.
While the SGP featured a one-size-fits-all model that ultimately undermined its credibility, the updated fiscal rules allow for a differentiated approach. The goal is to maintain the existing deficit and public debt limits while still encouraging member states to invest in green and digital technologies. Member states will be granted extended adjustment periods of up to seven years to reduce their debts to sustainable levels, provided they commit to reforms and investments that support this double (green/digital) transition.
But while the EU’s efforts to strike a balance between fiscal discipline and growth incentives are commendable, national budgets alone will not be enough to finance the EU’s ambitious double transition. The European Commission estimates that an annual investment of roughly €650 billion ($700 billion) is needed to meet the 2030 targets of producing at least 42.5% of the bloc’s energy from renewable sources and reducing greenhouse-gas emissions by 55%.
Under the new fiscal rules, funding for digital and green investments can be sourced from the €800 billion NextGenerationEU fund, which was established in 2020 to help European economies recover from the COVID-19 shock. But since the NGEU is scheduled to end in 2026, there is an urgent need for more durable financial mechanisms to support the EU’s long-term objectives.
As matters stand, the NGEU’s focus on national investments has left transnational projects such as high-speed railways and hydrogen infrastructure severely underfunded. Moreover, the US Inflation Reduction Act has widened the investment gap between Europe and the United States. To restore its strategic autonomy, European leaders should build on the success of the NGEU.
In a forthcoming paper, we propose the establishment of a $750 billion EU public-goods fund aimed at bridging funding gaps in crucial areas like renewable energy and digital infrastructure. The primary focus of this fund would be to catalyze cross-border investments and support projects that struggle to secure funding without EU-level financial support. By making access to this fund contingent on compliance with the new fiscal rules, the EU could maintain fiscal discipline among member states.
The public-goods fund, which would cover the 2026-30 period, is intended to align seamlessly with the EU’s climate goals. Building on the successful precedents established by previous EU borrowing initiatives, it would be financed by issuing EU bonds, backed by pooled national guarantees, the EU’s budget (bolstered by sufficient revenue streams), or both. Its proposed size represents roughly one-fifth of the bloc’s total investment needs through 2030, and the remaining investments would be financed through contributions from member states and the private sector.
By focusing on cross-border investments, the fund would underscore the EU’s unified approach to tackling European challenges. At the same time, the requirement to comply with the new fiscal rules would broaden the conditional framework established by the NGEU program, which linked fund access to the rule of law in recipient countries.
Similarly, the proposed conditionality regime would tie access to the new fund to domestic fiscal discipline, thus aligning with the EU’s revised fiscal guidelines. Rather than facing penalties for non-compliance, as was the case under the previous SGP, countries would be incentivized to demonstrate fiscal responsibility.
Thus, the conditionality regime would simultaneously boost the EU’s growth potential, uphold the integrity of the new fiscal rulebook, and encourage fiscal sustainability among member states. Moreover, increased debt issuance at the European level could be offset by reduced debt issuance at the national level.
Once the fund is established, countries would be encouraged to submit comprehensive investment proposals for transnational projects. The European Investment Bank would determine whether they are eligible to access the fund’s resources based on their alignment with the EU’s double-transition targets and the potential for positive cross-border spillovers. Meanwhile, the European Commission would ascertain that the countries proposing these projects comply with fiscal rules.
The fund’s proposed design aligns with the trend of using EU funds to achieve broader policy objectives. By relying on the successful model of the pandemic recovery fund and the bloc’s current conditionality regime, it would empower the EU to meet crucial climate targets while upholding its shared values.