Normative Narratives

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Green News: Properly Managing Natural Resource Revenues–A Focal Point of Sustainable Development

Following the adoption of the Sustainable Development Goals (SDGs) by the UN General Assembly, I would like to highlight a focal point of sustainable human development–utilizing natural resource revenue as a tool for sustainable human development.

Post-2015 Development Financing:

“There’s only so much amount of aid countries can rely on. Indeed, often you can’t rely on aid in the sense of relying on certain amounts every single year… it goes up, it goes down… governments fall in and out of love with the donors… so it’s not so reliable,” said Mr. Nolan.

“At the end of the day, a State operates on the basis of its own revenue collection. And a developmentally-oriented State, a State that actually wants to promote development through infrastructure, health, education spending, needs to raise most of the money itself.”

He added that raising revenue does not necessarily mean going into the rural areas and heavily taxing people. “It actually means taxing the better off in the society and also taxing companies, both domestic and foreign, more effectively.”

Tax rates, he noted, are very low in many low-income countries, in some cases under 15 per cent of gross domestic product (GDP). This could easily be increased by a series of reforms, as well as by better structuring of taxation in the extractive industries and greater attention to the transfer of money out of the country.

Meeting UN-backed climate goals requires leaving the vast majority of natural energy resource in the ground. But sustainable development is contingent on both the intrinsic (electricity) and market value of natural resources; one would be hard pressed to find a development practitioner that does not believe this revenue source is an essential piece of the development financing puzzle.

Developed countries have had decades, if not centuries, of using natural resources limitlessly in their pursuit of development; reliable access to energy is an indispensable part of poverty alleviation, economic growth, and modernization. We are essentially asking the worlds poorest countries to forgo the cheapest form of electricity available in the name of environmental sustainability (do as I say, not as I did). To reconcile this clear mismatch between ability to pay and necessity, the developed world must do more to reach it’s target of $100 billion per year by 2020 to help poorer countries fight climate.

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The “Natural Resource Curse“:

The “Natural Resource Curse”–the misappropriation of resource revenue–robs the worlds poorest countries of a needed source of development finance. Often times the natural resource curse finances armed conflicts, which cause immeasurable human suffering, roll back development gains, and make future development much more difficult (conflict is often associated with poverty and malnutrition which stunts physical and cognitive development, can prevent children from going to school, and can cause trauma that leads to lifelong psychological issues).

The Natural Resource Curse is not inevitable, but fighting it requires good governance and the security capacity to counter those who wish to extract revenues for their own privilege. Battling the Natural Resource Curse also requires effective sanctions regimes–by driving ill-gotten natural resource revenues to the black market, and attacking that black market and related international money laundering, international criminals and terrorists would lose an important source of funding.

Sanctions, of course, require broad based cooperation. There is a risk that in this era of disorder and instability, the international community might “ease up” on bad-but-stable governments. The importance of good governance of natural resource revenues shows this would be a short-sighted and ultimately counter-productive strategy for fighting international crime and promoting sustainable human development.

If the world is to simultaneously address the needs of Least Developed Countries (LDCs) and reach climate targets, we must focus on making sure LDCs leverage all the resources they do extract to maximize social welfare. Effective “South-South Cooperation“–the sharing of best practices between developing countries–would greatly enhance this effort.

Given the importance of the source, the propensity for corruption (“Resource Curse”), and the need to leave much of the existing deposits in the ground, when it comes to properly managing natural resource revenues for sustainable human development, there is little margin for error.

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Natural Resources and the SDGs:

Fortunately, proper natural resource revenue management is addressed many times throughout the proposed SDG text:

Goal 1. End poverty in all its forms everywhere

1.4 by 2030 ensure that all men and women, particularly the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership, and control over land and other forms of property, inheritance, natural resources, appropriate new technology, and financial services including microfinance.

Goal 5. Achieve gender equality and empower all women and girls

5.a undertake reforms to give women equal rights to economic resources, as well as access to ownership and control over land and other forms of property, financial services, inheritance, and natural resources in accordance with national laws

Goal 12. Ensure sustainable consumption and production patterns

12.2 by 2030 achieve sustainable management and efficient use of natural resources

Goal 16. Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels

16.4 by 2030 significantly reduce illicit financial and arms flows, strengthen recovery and return of stolen assets, and combat all forms of organized crime

16.5 substantially reduce corruption and bribery in all its forms

16.6 develop effective, accountable and transparent institutions at all levels

16.7 ensure responsive, inclusive, participatory and representative decision-making at all levels

Goal 17. Strengthen the means of implementation and revitalize the global partnership for sustainable development

Finance

17.1 strengthen domestic resource mobilization, including through international support to developing countries to improve domestic capacity for tax and other revenue collection

17.3 mobilize additional financial resources for developing countries from multiple sources

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Awareness, Self-Interests, People Power, and The End of Poverty

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Inside the Bill and Melinda Gates Visitor Center in Seattle, WA

While finishing up my first business trip in Seattle, WA, I walked by the Bill and Melinda Gates Foundation. Due to my studies and interests, I was familiar with the organization’s important work in the related fields of Education, Healthcare, and Poverty Eradication both in the US and abroad. Intrigued, I went in.

While walking around the visitors center, I was struck by something I read. Explaining the origins of the foundation, a plaque stated that Bill and Melinda gates started their mission by providing Internet access to public libraries in America. Then, in the 1990s, Bill and Melinda “learned” of the extreme poverty affecting children around the world (specifically lack of access to medical care), and expanded the scope of their work.

This line took me a while to comprehend. Growing up during the age of globalization and global news coverage, the plight of people in the developing world was something I had always taken as obvious. How could it be that someone, let alone one of the smartest people in the world, would have to “learn” about these injustices later in life?

Then I began to think about what growing up in a hyper-connected world meant. For those who grew-up in previous generations, understanding the plight of people in the developing world required an active and time consuming search for information. Conversely, growing up in generations Y / Z, with globalized news coverage and internet access, not knowing about the existence of extreme poverty requires willful ignorance.

There are many self-interested reasons for wanting to  promote sustainable human development and end poverty, including: stopping violent extremism, stemming the “offshoring” of jobs to lower income countries through economic convergence, and creating new markets for sustainable trade-based growth (the Great Recession was a perfect example of the unsustainability of relying too heavily on financial innovations for growth).

But universal awareness will also play a large role in ending poverty (much like the first step to finding a solution is admitting there is a problem). The “silent majority” of the global community believes in basic rights and human dignity for all. It is in the long run interests of the global community, and resonates with mankind’s central tenets as ethical, social beings. Ultimately, it is this awareness which will galvanize the global effort to end poverty.

The Post 2015 Development Agenda is an important element of the fight to end poverty, as it will help direct trillions of dollars of public and private development resources over the next 15 years. Building on the successes (and learning from the shortcomings) of the Millennium Development Goals (MDGs), the Post 2015 Development Agenda is being drafted in an inclusive and consultary manner. Incorporating input from the very people it is intended to help, the agenda recognizes the importance of civil / political rights, good governance, multi-sectoral accountability, and self-determination in ending poverty. With human rights and empowering the world’s most vulnerable people at its core, the Post 2015 Development Agenda is poised to make great strides in poverty eradication.

As the world continues to get “smaller” and more interconnected, the costs of environmental degradation, human rights abuses (in relation to terrorism and protracted social conflict / genocide), and economic inequality will more acutely impact not only to the world’s most vulnerable, but also people in first-world countries (who have historically have considered themselves largely immune to such issues).

While it will not be easy, ours is the generation that must make meaningful strides towards ending poverty and promoting sustainable human development in the worlds least developed countries (LDCs). Failure to do so would gravely affect us all, and this (now) common knowledge is (slowly) creating unstoppable momentum towards positive, sustainable change.


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Green News: The U.S. and China Discuss Energy Poverty, Sustainable Development in Africa

“Common But Differentiated Responsibilities”:

During the recent APEC summit, President’s Obama and Xi Jinping announced what could be a landmark environmental agreement. The U.S. pledged to reduce carbon emissions by 26 percent to 28 percent from 2005 levels by 2025. China pledged to reach peak emissions by 2030, while increasing its renewable energy consumption to 20% of total consumption (China currently gets about 10% of its energy from zero emission sources).

This announcement has been received well by the international community. With the two largest GHG emitters on board (in gross emissions, the map above shows per-capita emissions), many believe this announcement could galvanize support for a legally enforceable climate treaty, to be finalized during the 2015 UN Climate Change Conference in Paris.

Another potential area of cooperation, which has received far less attention but is nonetheless significant, were discussions between the U.S. and China regarding clean energy investment in Africa (original article):

The United States is considering partnering with China on improving electricity in Africa and the proposal could be part of bilateral discussions when President Barack Obama visits Beijing next week, two sources involved told Reuters.

The 48 countries of sub-Saharan Africa, with a combined population of 800 million, produce roughly the same amount of power as Spain, a country of just 46 million.

The shortage imposes a massive burden on economies in the continent, constraining growth and leading to hundreds of millions of people remaining mired in poverty.

China’s policies in Africa have also been described by some African leaders as “neo-colonial” – lending money to impoverished states to secure natural resources and support state-owned Chinese construction companies.

U.S. Secretary of State John Kerry hinted this week that discussions during the APEC conference to conclude a Trans-Pacific Partnership (TPP) would involve energy agreements in other parts of the world.

“The TPP is not only a trade agreement but also a strategic opportunity for the United States and other Pacific nations to come together, to bind together,” Kerry said in a speech in Washington on Tuesday.

“Second, powering a clean energy revolution will help us address climate change while simultaneously jump-starting economies around the world,” Kerry added.

Approximately 1.3 billion people in the world live without access to energy, 95% of which live in Sub-Saharan Africa or developing Asia. Without access to energy, it is impossible for a society to modernize; energy access is an indispensable component of poverty reduction. How those who currently live without access to energy fulfill their energy needs will be a primary determinant in meeting global emission targets.

According to the International Energy Agency, 2/3 of known fossil fuel reserves must stay in the ground in order to reach global emissions targets. This will require both ambitious climate agreements from large emitters such as the U.S. and China, as well as aggressive investments in clean energy in countries that do not currently emit as much.

(For more reading on Africa’s Energy and Economic landscape, check out the 2014 World Energy Outlook Special Report on Africa)

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Natural Resource Revenues, Accountability, and Development:

The Post-2015 Development Agenda, while appreciating the role of official development aid (ODA) in financing development initiatives, also recognizes the limits of relying on such a volatile source of funding. In order to reliably secure the finances needed for sustainable human development, developing countries will need to mobilize natural resource revenues in a responsible way.

This is admittedly  tall order. Historically, the “natural resource curse” has led natural resource revenues to be extracted by corruption rulers, cementing the rule of regressive, extractive regimes. Nigeria’s Sovereign Wealth Fund, while imperfect, provides a model for bringing transparency and accountability to natural resource revenue management.

Neocolonialism and corruption will not lead to development. When it comes to investing in Africa, the “return on investment” is in creating stable, resilient allies, who can positively contribute to global security and become new markets for trade; it is a long-game, not a short-game.

Lots of people have their hands out to grab resource “rents”. Therefore, a strong network of accountability is required if natural resource revenues are ever to benefit a countries poor / marginalized. This network includes social accountability (individuals, civil society organizations, and NGOs); corporate accountability (businesses operating in developing countries); and good governance at all levels (local, national, and international).

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The Extraterritorial Responsibilities of Global Leadership:

During the APEC summit, President Obama urged China to be a partner in ensuring world order:

U.S. President Barack Obama said on Monday a successful China was in the interests of the United States and the world but Beijing had to be a partner in underwriting international order, and not undermine it.

“Our message is that we want to see China successful,” Obama told a news conference. “But, as they grow, we want them to be a partner in underwriting the international order, not undermining it.”

He urged China to move “definitively” to a more market-based exchange rate and to stand up for human rights and freedom of the press.

At the risk of sounding cliche (or like a Spiderman move), with great power comes great responsibility. If China wants to be recognized as a global leader, it must show the world it is capable of fulfilling the obligations associated with such a role.


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Economic Outlook: De Blasio Administration Rebuffs JPMorgan; Sky Doesn’t Fall

Original article:

The possibility that JPMorgan Chase would build a two-towered, $6.5 billion headquarters on the Far West Side of Manhattan streaked across the skyline in recent weeks, only to die quietly on Tuesday.

Jamie Dimon, chairman of Chase, called Mayor Bill de Blasio and Gov. Andrew M. Cuomo on Tuesday to say that the country’s largest bank had decided to stay put on the East Side.

In the course of negotiations, the bank suggested that thousands of midlevel jobs could leave the city if the deal foundered. The mayor, in turn, publicly scoffed at the idea of handing over $1 billion in tax breaks and cash to Chase, on top of an existing $600 million in property tax breaks.

“This is an outcome that validates our approach, and our belief that these deals often come down to factors that have nothing to do with taxpayer subsidies,” Alicia Glen, deputy mayor for economic development, said in a statement on Tuesday. “We’re glad that JPMorgan has decided to maintain its buildings and its work force right where they are for the foreseeable future.”

Critics of corporate subsidies worried that the city might be returning to an era of retention deals, which had largely disappeared under Mr. de Blasio’s predecessor, Mayor Michael R. Bloomberg. The Committee for Better Banks, which includes labor unions and some liberal groups, was about to issue a report denouncing subsidies for Chase when the deal collapsed.

“New York has had an amazing run of job growth over the past decade,” said Jonathan Bowles, director of the nonprofit Center for an Urban Future. “I don’t see the need to turn back the clock and start another wave of big companies clamoring for tax breaks.”

When I started Normative Narratives 2 years ago, one of the first issues I wrote about was the (mis)use of tax dollars to attract private sector jobs. This “race to the bottom“, alongside unlivable minimum wages, make up the two most glaring forms of corporate welfare in America.

At a time of widening inequality (during which economic growth has gone almost exclusively to the wealthiest), marked by record corporate profits / cash holdings / tax minimization, and calls by those on the political right to slash the social safety net in the name of “fiscal responsibility”, corporate welfare is tantamount to taking from the poor to give to the rich.

Tax dollars should be spent on projects that make areas naturally more attractive to employers (a more skilled citizenry, better infrastructure, etc.). Since these projects are mutually beneficial, private money / expertise  should supplement public efforts (public-private partnerships), which in turn would build sustainable partnerships between corporations and municipalities (the opposite of “races to the bottom”).

Blindly throwing money at corporations because they promise to create jobs, without legally binding commitments and closely scrutinized CB analyses, is not a growth strategy.

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Corporate interests always claim the sky is about to fall; look at an almighty “job creator” the wrong way and they’ll close up shop and skip town. In reality, there are costs and uncertainties involved in moving, two things businesses don’t like. Case in point; JP Morgan threatened to move if it did not get what it wanted, only to stay put.

Good job by the De Blasio administration in standing up to JP Morgan. The net result is the same number of jobs (perhaps some short term construction jobs were foregone), and $1 billion more in NYC’s coffers to address the many deserving issues affecting the city. Hopefully this show of political will can serve as an example for municipalities around the country.

Proponents of such subsidies would probably argue that NYC bargains from a unique position of power, which is true. However, other municipalities have their own “natural” comparative advantages (such as lower real estate costs, lower costs of living, economies of agglomeration, etc). If such a “draw” to an area does not exist, all the more reason to invest in creating one!

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Generally speaking, large corporations decide they need to expand operations in order to meet demand, then shop around for the best deal (not the other way around). In other words, most subsidized jobs would exist with or without subsidies.

Ultimately, there needs to be better coordination at the federal level (including greater redistribution of tax dollars from high employment to low employment areas) to ensure municipalities are not bidding against each other for jobs that would be created anyway.

There are no shortcuts to sustainable economic development, but fiscal mismanagement, such as foregoing investing in making a market “naturally” attractive in order to subsidize jobs, can stall / reverse the process. Racing to the bottom provides cover for current administrations (and jobs for a select few), while ultimately leaving an area worse off in the long run (like putting a very expensive band-aid on a broken bone).

The De Blasio administration and JP Morgan had a staring contest, and JP Morgan blinked. If you happen to find yourself in NYC any time soon, look up–the sky isn’t falling.


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Green News: The Roles of “Rich” and “Poor” Countries in Combating Climate Change

Major Polluters: 

A rule proposed by the Enivironmental Protection Agency would cut carbon pollution from power plants 30 percent from 2005 levels by 2030 – the equivalent, according to the agency, of taking two-thirds of all cars and trucks in America off the road. Here are some things to know about the rule:

• The E.P.A. expects that under the regulation, 30 percent of electricity in the United States will still come from coal by 2030, down from about 40 percent today.

• The rule is not an executive order. Under the Clean Air Act, the E.P.A. is required to regulate any substance defined as a pollutant, which the law defined as substances that endanger human life and health. A 2007 Supreme Court decision led to an E.P.A. determination that carbon dioxide is a pollutant, thus requiring that the agency regulate it or be in violation of the law.

• The rule will not, on its own, lower greenhouse gas pollution enough to prevent catastrophic effects of climate change. But, in combination with other regulations, it would allow the United States to meet its commitment to the United Nations to cut carbon pollution 17 percent by 2020 and press other major polluting countries, particularly China and India, to follow suit.

Energy production accounted for 26% of global GHG emissions in 2008, the largest source by sector. If the United States can cut its own emissions from energy production by shifting towards renewable energies and natural gas, and pressure other leading emitters to follow suit, this could significantly mitigate the environmental damage caused by carbon dioxide emissions. Countries such as China and India will point to comparatively high levels of U.S. per capita emissions to counter pressure from the U.S. to reduce their emissions.

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Least Developing Countries (LDCs):

Access to energy is an essential component of modernization, poverty alleviation, and economic development. According to the International Energy Agency, 1.3 billion people (18% of the global population) live without access to electricity, 95% of which live in Sub Saharan Africa or developing Asia. In order to reconcile two fundamental components of sustainable human development–environmental sustainability and [extreme] poverty alleviation–the worlds least developed countries will need to satisfy their energy needs from low / zero emission sources.

There are a number of reasons to believe LDCs will rise to this challenge. As largely agrarian economies, LDCs face the negative impacts of climate change directly; food / water insecurity and communicable disease patterns are directly affected by changing climate patterns. Furthermore, because traditional energy infrastructure by definition does not exist in places without access to energy, the perceived “sunk costs” associated with renewable energy are largely non-existent.

However, LDCs face one large impediment to clean energy production–cost. As refined production techniques, market penetration, and creative financing drive down the price of renewable energy in the developed world, it is imperative that the technology gap be bridged to include LDCs in the renewable energy revolution. If the 18% of the global population without access to energy instead gain access to dirtier forms of energy, the actions of developed countries to combat climate change could be almost entirely negated.   

Despite this cost gap and shortfalls in pledged financing from developed countries, developing nations accounted for 43% of new renewable energy investment in 2013 ($93 billion out of a global total of $214 billion). However, only $9 billion of this investment came from Sub-Saharan Africa. Efforts to provide financing for renewable energy to those who currently lack access to any form of energy are at crux of sustainable human development, and must be scaled up immediately.

To this end, developed countries have pledged $100 billion per year in “climate aid” by 2020–if realized this would more than double investment in renewable energy in LDCs. Developing a global network of carbon taxation / cap and trade policies (or even a less ambitious patchwork of policies by the worlds largest emitters) can provide a steady revenue stream to ensure such aid is delivered.

Which countries are considered “rich” (and therefore are donor countries), and which countries are considered “poor” (and therefor aid recipients)? Once consensus is reached on this contentious issue, the question of how much aid each specific donor country should contribute remains (between historically high emitters / high per capita emitting “rich” countries, and current high emitting “emerging economies” such as China and India). These are the  challenges world leaders must work together to overcome while drafting the Post-2015 Climate Agreement / Sustainable Development Goals (SDGs).

Neither “rich” nor “poor” countries can adequately address global environmental risks alone–concerted action is needed.  


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Green News: The Science, Technology, Economics And Geopolitics Of Climate Change Align

Sustainable development is arguably the most pressing challenge of the 21st century. The effort to reduce extreme poverty and modernize underdeveloped regions of the world is invariably linked to access to energy. The way the developing world fills its energy needs (traditional vs. “green” energy), alongside the energy consumption habits of the developed world, will have a great impact on the future of climate change (In the U.S., for example, the energy sector was responsible for 1/3 of GHG emissions in 2012).

A number of longstanding impediments still stand in the way of a meaningful global climate change policy. There is the issue of who will shoulder the majority of the costs of a shift towards sustainable energy sources, countries who have the longest history of emissions / highest per capita emissions rates (developed countries such as the U.S.), or those who currently emit the most GHGs (such as China and India, with their heavy reliance on coal based electricity)?

Unhealthy smog in China and India have put more pressure on politicians to address national climate change agenda’s, but to this point have done little in terms of bridging a global climate change agenda.

A related issue is that the countries that are most susceptible to the negative impacts of climate change are small island states, which have a negligible influence on global policy matters. Organizations such as the UN’s Small Island Developing States (SIDS) and the Alliance Of Small Island States (AOSIS) attempt to overcome this issue by banding together to promote their mutual interests, but still face an uphill battle in compared to more influential global actors. Until the worlds most powerful nations start feeling strong adverse effects of climate change (which some would argue they already have), the needs of these smaller nations are likely to go unaddressed.

Perhaps the greatest impediment to global policy change is that the worlds most powerful nations house the most powerful energy companies, who have a vested interest in the status quo and hold immense political sway due to their roles as political donors and job providers.

When it comes to climate change, the burden of proof is on the “accuser”, a reality climate change deniers have used to their advantage; these companies have virtually limitless resources to challenge claims that climate change is a man made phenomenon, or that it is linked to their activities. To quote Nick Naylor in the satirical comedy “Thank You For Smoking”; “These guys realized quick if they were gonna claim cigarettes were not addictive they better have proof. This is the man they rely on, Erhardt Von Grupten Mundt. They found him in Germany. I won’t go into the details. He’s been testing the link between nicotine and lung cancer for thirty years, and hasn’t found any conclusive results. The man’s a genius, he could disprove gravity.” In other words, if you pay a scientist / economist / expert enough money, they can disprove / refute any claim. 

While the costs of addressing climate change are quantifiable (difference in costs between competing energy sources, jobs / economics output lost, etc.), the benefits tend to be more abstract (ex: the costs of addressing climate change will be “greater in the future”, we can stave off natural disasters with untold economics costs, the effects on global food security, etc.). In a world of budget constraints and high unemployment, the quantifiable and immediate costs of addressing climate change tend to overpower the necessary reforms. Factoring in power asymmetries (those arguing for action are much “weaker” than those arguing against it), and the future of global climate policy becomes even bleaker.

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However, there are reasons to be optimistic about the future of global climate change initiatives. For one thing, denying climate change has become a fringe position; the latest IPCC’s report found with 95% certainty that climate change is a man made phenomenon, and a slight majority (53%) of young Republic voters (the political party in the U.S. typically associated with inaction against climate change) describe climate change deniers as ‘ignorant,’ ‘out of touch’ or ‘crazy.’

In the long run, the Post-2015 Development Agenda is being developed alongside Sustainable Development Goals (SDGs), which seem poised to be agreed upon in a Global Climate Treaty in 2015.

There are also immediate economic and geopolitical reasons to be optimistic about the future of renewable energy proliferation:

Economic:

The Intergovernmental Panel on Climate Change, which pools the efforts of scientists around the globe, has begun releasing draft chapters from its latest assessment, and, for the most part, the reading is as grim as you might expect. We are still on the road to catastrophe without major policy changes.

But there is one piece of the assessment that is surprisingly, if conditionally, upbeat: Its take on the economics of mitigation. Even as the report calls for drastic action to limit emissions of greenhouse gases, it asserts that the economic impact of such drastic action would be surprisingly small. In fact, even under the most ambitious goals the assessment considers, the estimated reduction in economic growth would basically amount to a rounding error, around 0.06 percent per year.

What’s behind this economic optimism? To a large extent, it reflects a technological revolution many people don’t know about, the incredible recent decline in the cost of renewable energy, solar power in particular.

The climate change panel, in its usual deadpan prose, notes that “many RE [renewable energy] technologies have demonstrated substantial performance improvements and cost reductions” since it released its last assessment, back in 2007. The Department of Energy is willing to display a bit more open enthusiasm; it titled a report on clean energy released last year “Revolution Now.” That sounds like hyperbole, but you realize that it isn’t when you learn that the price of solar panels has fallen more than 75 percent just since 2008.

Thanks to this technological leap forward, the climate panel can talk about “decarbonizing” electricity generation as a realistic goal — and since coal-fired power plants are a very large part of the climate problem, that’s a big part of the solution right there.

It’s even possible that decarbonizing will take place without special encouragement, but we can’t and shouldn’t count on that. The point, instead, is that drastic cuts in greenhouse gas emissions are now within fairly easy reach.

So is the climate threat solved? Well, it should be. The science is solid; the technology is there; the economics look far more favorable than anyone expected. All that stands in the way of saving the planet is a combination of ignorance, prejudice and vested interests. What could go wrong? Oh, wait.

Geopolitics:

SO the latest news is that President Vladimir Putin of Russia has threatened to turn off gas supplies to Ukraine if Kiev doesn’t pay its overdue bill, and, by the way, Ukraine’s pipelines are the transit route for 15 percent of gas consumption for Europe. If I’m actually rooting for Putin to go ahead and shut off the gas, does that make me a bad guy?

Because that is what I’m rooting for, and I’d be happy to subsidize Ukraine through the pain. Because such an oil shock, though disruptive in the short run, could have the same long-term impact as the 1973 Arab oil embargo — only more so. That 1973 embargo led to the first auto mileage standards in America and propelled the solar, wind and energy efficiency industries. A Putin embargo today would be even more valuable because it would happen at a time when the solar, wind, natural gas and energy efficiency industries are all poised to take off and scale. So Vladimir, do us all a favor, get crazy, shut off the oil and gas to Ukraine and, even better, to all of Europe.Embargo! You’ll have a great day, and the rest of the planet will have a great century.

“Clean energy is at an inflection point,” explains Hal Harvey, C.E.O. of Energy Innovation. “The price reductions in the last five years have been nothing less than spectacular: Solar cells, for example, have dropped in cost by more than 80 percent in the last five years. This trend is underway, if a bit less dramatically, for wind, batteries, solid state lighting, new window technologies, vehicle drive trains, grid management, and more. What this means is that clean energy is moving from boutique to mainstream, and that opens up a wealth of opportunities.”

We are closer to both irreversible dangers on climate and scale solutions on clean tech than people realize. Just a little leadership now by America — or a little scare by Putin — would make a big difference.

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To be sure, all of the impediments discussed in this article still remain; power asymmetries, a sluggish global economy, different views about who should pay the costs of “greening” the planet. However, no impediment can withstand a well informed and empowered public; the science, technology, economics and geopolitics of climate change have aligned, the time for change is now (I hate making blanket statements like this, but for the reasons discussed in this blog, I truly believe it in this instance).

All that remains is the political will to stand up to vested interests and the public support to finance the shrinking cost gap between traditional and renewable energy sources (which could be further closed with some form of carbon taxation–again an issue of political will).

When the issue at hand is the fate of our planets ecosystems, with costs that are both unpredictable and rising, how can we not rise to this challenge?


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Green News: Army Program to Test Waste-to-Fuel Viability

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Continuing the narrative on the potential of turning waste-to-energy, an Army program will offer a natural experiment of the economic viability of the concept (original article).

THERE is an indisputable elegance to the idea of transforming garbage into fuel, of turning icky, smelly detritus into something valuable.

But big drawbacks have prevented the wholesale adoption of trash-to-gas technology in the United States: incineration is polluting, and the capital costs of new plants are enormous. Gasification systems can expend a tremendous amount of energy to produce a tiny amount of electricity. Up to this point, it hasn’t seemed worth the trouble.

Mike Hart thinks that he has solved those problems. In a former Air Force hangar outside Sacramento, his company, Sierra Energy, has spent the last several years testing a waste-to-energy system called the FastOx Pathfinder. The centerpiece, a waste gasifier that’s about the size of a shower stall, is essentially a modified blast furnace. A chemical reaction inside the gasifier heats any kind of trash — whether banana peels, used syringes, old iPods, even raw sewage — to extreme temperatures without combustion. The output includes hydrogen and synthetic natural gas that can be burned to generate electricity or made into ethanol or diesel fuel. The FastOx is now being prepared for delivery to Sierra Energy’s first customer: the United States Army.

Ethanol has long been promoted as an alternative fuel that increases energy independence, and federal law requires the use of greater amounts of it. But most ethanol in this country is produced from corn or soybeans, and many people worry that the mandate is pushing up food prices. Ethanol produced from trash — or agricultural waste, as others are trying — would allay such concerns.

The military is looking for ways to reduce its oil consumption, and to make it easier to supply the front lines with the fuel it uses in all its vehicles and generators. “These days, the supply lines are in the battlefield,” said Sharon E. Burke, the assistant secretary of defense for operational efficiency plans and programs. “And we consume a lot of fuel, which makes us a big target.

The FastOx gasifier is the brainchild of two former engineers at Kaiser Steel, patented by the grandson of one of them and commercialized by Mr. Hart. “It’s a modular system that can be dropped into any area,” Mr. Hart said, “using waste where it’s produced to make electricity where it’s used.” Once it’s off the ground, he said, “garbage will be a commodity.”  

Gasification is more efficient than incineration and eliminates toxic byproducts that come from burning trash. But it was especially appealing from a business point of view because it relied on a proven technology and used materials in wide abundance: blast furnaces being abandoned as the American steel industry was collapsing.

“What was compelling from the start,” Mr. Soderquist said, “was repurposing existing infrastructure into a generator of clean energy, with a second revenue stream from people paying you to take their waste.”

Results at the Defense Department’s testing facility near Sacramento have been promising; after about four hours, one ton of waste creates enough gas to produce 1,580 kilowatt-hours of electricity, which would power an average home in the United States for about a month and a half — at one-third the emissions of coal — and 42 gallons of renewably sourced fuel. And that’s with a 12-ton-a-day gasifier; existing blast furnaces can handle as much as 2,000 tons a day.

“California produces 30 million tons of garbage a year,” Mr. Hart said. “If it decided to turn its waste into clean fuels, at that rate it could meet all its oil consumption needs and still export more fuel than some OPEC members.” That is, if the FastOx can do what no other waste-to-energy gasification technology has done before: take any kind of trash, in any succession, without additional separation or preparation.

Any waste-to-energy plan, however, must overcome a major hurdle: the wild inconsistency of the waste stream. “Until you’ve demonstrated that you can handle it all, nobody’s interested,” Mr. Hart said. “I can understand it; they’ve heard similar promises before. We’ve got 150 cities, communities and businesses lined up to be Serial No. 2. Nobody wants to be No. 1.”

NOBODY, that is, except the Pentagon. The Defense Department is the country’s largest single consumer of energy, spending $15 billion a year just on fuel.

The appeal of Mr. Hart’s Pathfinder system is that it would produce fuel on site, eliminating the need to truck in fuel to dangerous military outposts. It would also reduce the need for trash-burning on bases, which creates pollution and noxious odors that have contributed to locals’ distaste for the American presence in Iraq and Afghanistan.  As a result, United States forces in Afghanistan are working to close burn pits.

Ms. Burke added, “Something for military operations has to be really rugged, deployable, simple to use — all of those things.” Consultants and municipal sanitation officials who’ve looked at the FastOx say it meets those criteria.

“Waste is a problem,” Ms. Burke said. “So if we could dispose of waste and create energy at the same time, that would be a silver bullet.”

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Whats not to love about this story? An idea for turning trash-to-fuel, a seemingly futuristic and complex concept, with its origins in a 1980s steel plant. The process does not require complex new technology, but instead relies on modified blast furnaces, which are abundant due to the decline of the U.S. steel industry. Utilizing recycled capital and infrastructure only makes waste-to-fuel more appealing from a sustainability and affordability point of view. 

The idea was scoffed at, evolved through trial and error and by chance, and today has become the first trash-to-fuel concept to be adopted by the U.S. D.o.D. With minimal government aid (the article cites $8 million dollars from the federal and state government), and a little bit of American ingenuity and determination, garbage may someday be worth its weight in gold (not literally, but as the article says it will be a commodity, not a liability).

A little more research into the D.o.D energy consumption further emphasized the importance of “greening-up” D.o.D operations:

DoD analyses over the last decade have cited the military’s fossil fuel dependence as a strategic risk and identified renewable energy and energy efficiency investments as key mitigation measures.

As the largest energy consumer in the United States, the federal government plays an important role in the country’s energy system. In recent years, a number of factors have led it to reduce fossil fuel dependence through investment in renewable energy and energy efficiency, including supply risks, high and volatile prices, and environmental impacts. In fiscal year 2010, DoD spent $4 billion on installation energy and $11 billion on operational energy. The full cost of fuel can be as high as $400 per gallon by the time it is delivered to a remote Forward Operating Base.

Recent U.S. Military operations in the Middle East have been too closely associated with U.S. energy interests. It is hypocritical to cite foreign energy dependence as a national security threat and not do everything in your power to reduce your own organization’s reliance on those very same energy sources.

I often write about the sustainability of U.S. military endeavors from an opportunity cost (programs we can’t afford as a nation because of high military spending) and human loss perspective. This form sustainability is about knowing when to use military intervention and when to pursue other means of foreign policy, within the D.I.M.E. paradigm. However, sometimes military intervention is necessary; another manifestation of military sustainability is ensuring that day-to-day operations and necessary military interventions are carried out in the most environmentally sustainable way as possible.

Furthermore, according to the NYT article, less reliance on fossil fuels would reduce the number of military deaths; “about half of United States casualties in Iraq and Afghanistan between 2003 and 2007 were of servicemen and servicewomen moving and protecting fuel convoys, according to an Army report.”

As a nation we spend a lot on military programs–far more than any other country. We also consume a lot of energy; these two characteristics of America are not completely independent of one another. Both of these forms of sustainability are about making sure every dollar that goes to the D.o.D. is truly needed an fully utilized, as it is one dollar that cannot go to a school, hospital, infrastructure project, or any other public good / program (not to mention both reforms would directly save lives). There are arguments for and against reducing military spending, which I will not get into here. It is, however, indisputable that the D.o.D. and the D.o.S. should work together in order to operate in the most strategic and environmentally sustainable way possible.

Waste-to-energy is a promising concept that could eventually transform how the military and municipalities deal with waste–I’ll be sure to keep my readers up-to-date about this exciting experiment.


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Transparency Report: TEOTAWP, Cyber-Terrorism, Civil Liberties and Invasion of Privacy

For clarity sake, TEOTAWP stands for The End of Team America World Police, a recurring theme here at NN.

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Two weeks ago, President Obama addressed the nation to signal a shift away from President Bush’s “War on Terror” towards more sustainable foreign policy.

Yesterday, information was leaked about the U.S. government using “dragnet” tactics to access American’s personal telephone and internet information. There has understandably been outrage about this apparent infringement on civil rights / liberties. The purpose of this blog post is not to address this legitimate concern, but rather to explain why data-mining is perfectly consistent (and arguably a logical conclusion) of the Obama administrations stance on national security.

A recap of what Obama said, through the NN lens, can be read here:

“‘Our systematic effort to dismantle terrorist organizations must continue,’ Mr. Obama said. ‘But this war, like all wars, must end. That’s what history advises. That’s what our democracy demands.’

Mr. Obama rejected the notion of an expansive war on terrorism and instead articulated a narrower understanding of the mission for the United States. ‘Beyond Afghanistan, we must define our effort not as a boundless ‘global war on terror’ but rather as a series of persistent, targeted efforts to dismantle specific networks of violent extremists that threaten America,’ he said.

‘Neither I, nor any president, can promise the total defeat of terror,’ Mr. Obama added. ‘We will never erase the evil that lies in the hearts of some human beings, nor stamp out every danger to our open society. But what we can do — what we must do — is dismantle networks that pose a direct danger to us, and make it less likely for new groups to gain a foothold, all the while maintaining the freedoms and ideals that we defend.’”

“As our fight enters a new phase, America’s legitimate claim of self-defense cannot be the end of the discussion,” Mr. Obama said. “To say a military tactic is legal, or even effective, is not to say it is wise or moral in every instance. For the same human progress that gives us the technology to strike half a world away also demands the discipline to constrain that power — or risk abusing it.”

“The changes reflect a conclusion by the White House that the core of Al Qaeda has been decimated by years of strikes and the raid that killed Osama bin Laden. But in the speech, the president said that the threat had evolved in a complicated mosaic of dangers from affiliated groups and homegrown terrorists, like the bombers who attacked the Boston Marathon.”

“Speaker John A. Boehner, Republican of Ohio, issued 10 questions to the president in reaction to previews of his speech. “Is it still your administration’s goal to disrupt, dismantle, and defeat Al Qaeda?” he asked. “If you are scaling back the use of unmanned drones, which actions will you be taking as a substitute to ensure Al Qaeda’s defeat? Is it your view that if the U.S. is less aggressive in eliminating terrorists abroad, the threat of terrorist attacks will diminish on its own?”

I, like President Obama, addressed the issue from a theoretical/normative perspective; over the medium to long run more cooperation and building stronger, more resilient geopolitical relationships will allow the U.S. to divert some resources from the DoD to the DoS, an element of “D.I.M.E” diplomacy.

Secretary of Defense Chuck Hagel expanded on Obama’s vision recently, in a more practical short-term way:

“Over all, he said, the United States will keep its “decisive military edge,” an oblique but distinct reference to American military superiority. China has announced an 11.2 percent increase in military spending this year, part of its rapid military modernization.

He stressed that new technologies would entail spending fewer resources in a smarter way…”

As Senator Boehner’s questions highlight, simply ignoring terrorism and the growing threat of cyber-terrorism will not make these issues go away. They demand a response that is more sustainable financially and more stomach-able morally. Obama did not say he would stop drone strikes, but that he would make the process more transparent. He did not say he would stop fighting terrorism, but that the way that terrorism is going to be fought is changing.

Instead of sending our young men and women to remote locations to fight unsustainable wars which tarnish America’s image and fuel anti-American sentiments, the Administration will use a fraction of those resources to protect homeland security. Obama’s statement that the “threat had evolved in a complicated mosaic of dangers from affiliated groups and homegrown terrorists, like the bombers who attacked the Boston Marathon.”, alludes to a more covert approach in combating terrorism and protecting America’s national security interests.

We must realize that everyday there are people who try to hurt Americans–Jihad does not take a vacation. The fact that the Boston Marathon attack was the first major act of terrorism on American soil since 9/11 is not a result of a diminished threat, but rather highlights the efficacy of American intelligence efforts.

To the extent that the Obama administration is embracing a a shift to D.I.M.E. (diplomatic, intelligence, military, economic) foreign policy, winding down traditional military programs requires putting more resources in diplomacy, economic aid, and intelligence gathering. As I said, far from being hypocritical, the Obama administration is being consistent; when the ultimate goal is security for American’s (and the world), putting people directly in the line of fire is counter-productive unless it is truly a last-case scenario.  

If gathering personal communications data is what it takes to unlock resources needed for important domestic programs, brings home the troops, while continuing our efforts to undermine anti-American forces at home and abroad, then we must take a practical view of the matter. Particularly in light of the cyber-security threat, monitoring internet actions seems like a logical counterweight.

There is certainly a debate to be had about protecting our civil liberties in modern times, but the “slippery-slope” argument is akin to conspiracy theory. Just because the Federal government has access to personal information does not mean it will be used for nefarious purposes. In fact, its is exactly because it is the U.S. government that we should not have these fears; as cynical as people are about the U.S. government, it is the global model for transparency, accountability, and protection of human rights (including civil rights).

For example, the U.S. government has nuclear weapons in order to maintain peace and stability. North Korea and Iran, on the other hand, are trying to develop nuclear capabilities for destabilizing purposes. That is why North Korean and Iranian nuclear capabilities, while negligible compared to American capabilities, pose a much more direct threat and have drawn a consensus response (global sanctions). If this seems like a double standard, it’s because it is. America, and other nations that have proven they are accountable and responsible, have earned the right to pursue certain questionable actions in the name of the “greater good”. The same claim, by a government that is unaccountable and systematically violates human rights, does not hold the same merit.

Nothing in this world is black-and-white. The economist in me tends to approach complex issues in cost-benefit framework. It seems to me that the benefits of collecting personal information are tangible, while the costs amount to little more than unfounded fear of “big brother”. Conspiracy theories may be a fun distraction on a rainy afternoon for some, but they have little place in practical political and foreign policy debates.

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The fact that the bipartisan support exists on this issue should tell us something about its importance:

“Congressional leaders from both parties stood by a program that they had effectively sanctioned through the passage of counter-terrorism laws over the years. Senators Dianne Feinstein, Democrat of California, and Saxby Chambliss, Republican of Georgia, the chairwoman and vice chairman of the intelligence committee, released a joint statement defending the surveillance.

“The threat from terrorism remains very real and these lawful intelligence activities must continue, with the careful oversight of the executive, legislative and judicial branches of government,” they wrote.”


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Conflict Watch: The U.S. is Teaching China How to be a World Power

“In remarks directed at China, Defense Secretary Chuck Hagel spoke Saturday of a “growing threat” of cyber-attacks against the United States and called on America and its allies to “establish international norms of responsible behavior in cyberspace.”

“The United States has expressed our concerns about the growing threat of cyberintrusions, some of which appear to be tied to the Chinese government and military,” he said in a speech largely devoted to the Obama administration’s defense posture in Asia.

“At the same time, Mr. Hagel stressed the need for more talks between the American and Chinese militaries to build trust and reduce the risk of miscalculation at a time of mounting rivalry.

His remarks were immediately challenged by a Chinese general in a question-and-answer session after his speech. A delegate to the conference, Maj. Gen. Yao Yunzhu, director of the Center for China-America Defense Relations at the Academy of Military Science in Beijing, said she was not convinced — and China was not convinced — that the United States wanted a “comprehensive” relationship with China. The new United States policy in Asia and the Pacific amounts to containment of China, General Yao said.”

Mr. Hagel responded that Washington wanted more transparency in military dealings with China. “You have to talk to each other, be direct with each other, be inclusive,” he said.”

Over all, he said, the United States will keep its “decisive military edge,” an oblique but distinct reference to American military superiority. China has announced an 11.2 percent increase in military spending this year, part of its rapid military modernization.

He stressed that new technologies would entail spending fewer resources in a smarter way, saying that the Navy had launched an experimental drone from an aircraft carrier last month for the first time. It was a feat, he said, that ushered in a new era of naval aviation. Unstated — but understood by many in the audience — was the fact that China just last year put into service its first aircraft carrier, an old Ukrainian vessel refitted by the Chinese.

Mr. Hagel also said the United States would deploy a solid-state laser aboard the Ponce, a naval vessel, next year. He said it would provide “an affordable answer” to counter threats like “missiles, swarming small boats and remotely piloted aircraft.”

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The complex relationship between the U.S. and China has been a recurring theme here at NN. The two countries combined account for roughly 1/4 of the world’s population and 1/3 of global economic output. The relationship between the two countries has become even more important as technological advances continue to make the world “smaller”.

The new major threat to U.S. security is cyber-attacks. Not terrorists attacks on U.S. soil, not an invasion from a foreign enemy, but cyber-attacks. The world is connected through the internet and other satellite technologies, and there is no turning back from further integration. The problems facing the world in the 21st century require cooperation, coordination, and global governance. This is why we see so much emphasis on transparency and accountability in international relations, because what happens in one country has direct effects on other countries in today’s globalized world.

It is because of this that the U.S. is taking such a hard-line approach with China. The U.S. must have very conclusive evidence to continue to name the Chinese government and military as the source of many cyber-attacks in America. America’s leaders fully understand the complexity and importance of our relationship with China; it is because of this that the U.S. generally treads carefully with regards to China–we pick our battles.

But the U.S. is also making it abundantly clear that while national sovereignty may be enough to avoid international military intervention (as Russia and China continue to emphasize with regards to the Civil War in Syria), it is not a shield which a country aspiring to become a hegemonic power can hide behind.

Sustainable hegemonic power requires transparency and accountability. It requires a strong citizen base, with investments in human capital and overall enjoyment of life. It requires the freedoms and social capital needed for people to pursue meaningful lives, to innovate and push the frontiers of whatever industry their passion lies in. It requires a long-term vision of the world, and sustainable development policies to realize that vision. It requires post-modern values and an appreciation of human rights for all people in the world. And it requires a modernized military to back up your normative view of the world.

China is an economic power, but not yet a global power. Until China loosens the reigns of authoritarianism, and provides its people with the hope and optimism that equality of opportunity, social mobility, and freedom of expression bring, China will not realize it’s true growth potential. In recent years China has made great strides in reform and modernization, but in reality has only begun the process.

President Obama is set to meet with Chinese President Xi Jinping on June 7th and 8th. “On his previous U.S. visit last February, President Xi proposed the concept of “a new type of relationship between major countries, a concept which was accepted in March 2013 by Tom Donilon, National Security Advisor to the President Obama. American Treasury Secretary Jacob Lew, Secretary of State John Kerry and Chairman of the Joint Chiefs of Staff Martin Dempsey have all visited China recently and raised concerns over North Korea’s nuclear program, cyber security, trade and military communications.

We have not seen the U.S. accept many diplomatic initiatives proposed by China and perhaps the most pressing concern in U.S. circles centers on just what form the “new type of relationship between major countries” will take. The meeting is also a great opportunity for both sides to voice their concerns and reach some kind of consensus.”

President Obama will likely address President Xi directly over matters such as Cyber-security, the Korean Peninsula, and the Syrian Civil War. Part of being a global power is taking an active role in international affairs, and going beyond fulfilling the negative rights of a “do no harm” international policy.

The United States has almost a century of experience being a modernized hegemonic power; China can learn from our experiences and expedite the modernization process, or it can continue to hide behind the shield of “national sovereignty”, depressing its future growth potential.

If Xi wants to really change the relationship between China and the U.S., trusting that the U.S. has China’s best interests in mind is a good place to start. The U.S. is not trying to undermine Chinese development–the two countries are too interdependent on one another. The first step towards achieving Xi’s goal is building real trust and friendship between the countries leaders. 

Hopefully the meeting between the two reform-minded leaders will act as a catalyst to allow the U.S and China to begin building this relationship. The U.S. government can provide the Chinese government with the leeway and responsibility in global affairs it desires, if the Chinese government can prove it can be more transparent and accountable for its actions.

It will be interesting to see how each side views the talks, and what sort of changes in U.S.-Chinese relations occur.


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Economic Outlook: Financial Flows,Taxation, and Accountability

The primary function of taxation is to collect revenue to pay for public goods and services. Public goods and services are non-rival and non-excludable, they therefore often suffer from a “free-rider problem” (people benefit from the positive externalities regardless of whether they pay into the cost of the good or not). It is because of this free-rider problem that the private sector cannot efficiently provide public goods, necessitating what is sometimes referred to as the “social contract” between people and their governments (I will give up something, in this case money via taxation, in order to have certain publicly provided provisions). Examples of public goods are basic infrastructure (such as roads), and public services (such as police officers, firefighters, and public school teachers). 

Individual countries decide for themselves at what level taxes should be set, and what should be provided for via taxation. Individual countries also decide to what extent taxes should be progressive or flat. But across the world, in societies as fundamentally different as you can imagine, this general “social contract” relationship exists. Taxes also provide resources for social safety-net programs, which are important for inter-generational income smoothing, social mobility, and reducing inequalities (despite the “47% argument”)

Taxes can also be used for legitimizing purposes. Every modern country has tax collection and income monitoring services (performing similar functions as the IRS in America). One of the major functions of these organizations is ensuring that everyone pays what they are supposed to. A secondary function is to provide legitimacy to ones income; if someone claims large amounts of money with a questionable source, it will raise a red flag, and an investigation will ensue (if the system is working properly).

Taxes can also be used to influence ones behavior. The tax on cigarettes in NY is a good example of this. While the government cannot stop people from smoking, they can make it prohibitively expensive to smoke in hopes that people pursue healthier activities.

These are just some of the general functions of taxation.

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As we know here at NN, not everyone plays by the rules, particularly when it comes to taxation. Offshore banking is a huge problem, perpetuating income inequality,  human rights abuses, and robbing governments of resources to fulfill their obligations. Some countries systematically provide rock-bottom tax rates and legitimacy for depositors without properly vetting the source of their money, leading to destabilizing financial inflows that dwarf the countries annual output (Cyprus is the most recent example you may remember).

As governments face difficult choices in the wake of the Great Recession, it has become more and more obvious that greater coordination and accountability are needed between countries to ensure that the world’s wealthiest pay their fair share for the public goods and services that have helped them to amass their wealth (and are held accountable for their role in the Great Recession).

The silver-lining of the Great Recession is that much more focus has been put on destabilizing forces that have accompanied financial globalization (and more recently technological advances which have made high speed / arbitrage seeking investment all the more possible). One example of this is the breaking of secrecy by Swiss Banks. Swiss Accounts are arguably the most famous example of elite tax-evasion; their exposure serves as a symbolic as well as practical turning point in offshore banking history. Another example is the imposition of a financial transaction tax (FTT), even if it has been watered down for now.

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Swiss Banking:

“The Swiss government said on Wednesday that it would allow its banks to disclose information on American clients with hidden accounts, a watershed move intended to help resolve a long-running dispute with the United States over tax evasion.

The decision, which comes amid widening scrutiny in Europe of tax havens, is a turning point in what has been an escalating conflict between Switzerland and the United States.

Eveline Widmer-Schlumpf, Switzerland’s finance minister, said the move would enable Swiss banks to accept an offer by the United States government to hand over broad client details and pay fines in exchange for a promise by United States authorities not to indict any banks.”

“Ms. Widmer-Schlumpf declined to say how much banks might have to pay. But she said the Swiss government would not make any payments as part of the agreement. Sources briefed on the matter say the total fines could eventually total $7 billion to $10 billion, and that to ease any financial pressure on the banks, the Swiss government might advance the sums and then seek reimbursement.

“It is important for us to be able to let the past be the past,” Ms. Widmer-Schlumpf said at a news briefing in Bern, Switzerland. She declined to give any details about the program, but said banks would have one year to decide whether to accept the American offer.

American clients whose names are handed over by Swiss banks but who have not voluntarily disclosed hidden accounts to the Internal Revenue Service would probably face criminal tax-evasion charges, lawyers said. Dozens of Americans have been indicted or charged in recent years for failing to disclose their accounts.”

Calling the decision ‘a good, a pragmatic solution for the banks to emerge from their past,’ Ms. Widmer-Schlumpf said, ‘We expect this to create the base for banks to again gain some room for maneuver so that calm can return to the sector.’”

“‘This is an important step for the banks; it will apparently allow them to disclose statistical information, such as the number of accounts with U.S. beneficial owners, the number of accounts with foreign corporations or foundations, and the amount of assets under management,’ said Scott Michel, a tax lawyer in Washington, D.C. ‘The I.R.S. and D.O.J. can use this information as the basis for financial penalties under settlement agreements, which might be deferred-prosecution agreements or non-prosecution agreements.’”

It seems Switzerland wants to shed it’s stigma of an off-shore tax haven, and move forward with a more sustainable and transparent financial sector.

“‘Resolution of the conflict ‘has taken longer than it should have, with a lot of otherwise avoidable damage suffered on the Swiss side,’ said Robert Katzberg, a white-collar criminal defense lawyer in New York with Swiss and American bank clients. ‘But it now appears the end is in sight.’”

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Financial Transaction Tax: It is no secret that irresponsible lending practices perpetuated financial bubbles around the world which eventually led to the Great Recession. One way of holding financial institutions responsible for their role in the Great Recession, while also raising revenue governments desperately need, is a financial transaction tax (FTT). CESR is a great resource for background info on the financial sectors role and human rights implication of The Great Recession, as well as the FTT.

A recent NYT article is critical of a watered down FTT in the works in Europe. While I agree it is disappointing the tax has been significantly reduced, the introduction of any FTT is a movement in the right direction. An incremental approach may be the best way to introduce this important new policy, and give it a real chance to work (instead of leading to large-scale capital flight to non-FTT countries):

“European countries planning a tax on financial transactions are set to drastically scale back the levy, cutting the charge by as much as 90 percent and delaying its full roll-out for years, in what would be a major victory for banks.

“Under the latest model, the standard rate for trading bonds and shares could drop to just 0.01 percent of the value of a deal, from 0.1 percent in an original blueprint drafted by Brussels. That would raise only about 3.5 billion euros, rather than the 35 billion initially forecast, a senior official said.”

“The tax may now also be introduced more gradually: rather than applying to trades in stocks, bonds and some derivatives from 2014, it may apply next year only to shares. Bond trades would not be taxed for two years and derivatives even later.

The roll-out could be scrapped altogether if, for example, the tax pushed traders to move deals abroad to avoid paying it.”

“The Financial Transaction Tax (FTT) resurrects an idea first conceived by U.S. economist James Tobin more than 40 years ago and has been symbolically important for politicians to show they are tackling the banks blamed for causing the financial crisis.”

‘You can introduce it on a staggered basis,’ said a second official. ‘We start with the lowest rate of tax (0.01 percent) and increase it bit by bit.'”

“‘The risk is that if you have some countries not participating, you have some shift of business from the countries in the tax to the countries without the tax,’ said one official, familiar with French government thinking. ‘This step by step approach can make sense.’“

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There is also the issue of which financial assets should be included in the proposed FTT:

“Within the group of 11 countries, Italy and France have expressed concerns about widening the tax beyond shares to government debt as both believe it could discourage investors from buying their bonds.”

I agree with Italy and France on this issue. The main reason many Euro countries are facing such crippling austerity is due to a “sovereign debt crisis“. These countries cannot afford to borrow sustainably, forcing them to make painful cuts which have led to a double-dip recession and high unemployment throughout Europe.

The FTT could potentially add to the borrow costs governments face if it included bonds as well. If however, a tax included everything except bonds, it would have the effect of lowering government borrowing costs. Making other financial transactions more expensive would make bond purchases more profitable by comparison (assuming financial institutions will pass on some portion of the tax to the customer, which is a pretty safe assumption). While the difference would be marginal, even a marginal decrease in borrowing costs can unlock millions if not billions in government resources.

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What we see is the international community slowly working to make financial globalization more accountable and sustainable. While we may be frustrated with the slow rate of progress (as the author of the NYT article clearly is), it is important to realize that we are making meaningful progress.

Despite the political and economic cynics out there, who in their great “wisdom” will tell you nothing is happening to hold powerful interests accountable for their role in the financial crisis, we have as a global community learned lessons (albeit incredibly hard learned lessons) and are taking steps to ensure we do not repeat our past mistakes.

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