Citizen Dividends and Oil Resource Rents
[A paper presented in the U.S. Basic Income Guarantee
Network (USBIG) Track of the Eastern Economic Association 30th Annual
Conference held February 20-22, 2004 in Washington, DC]
Abstract: Citizens of Alaska have
been receiving individual dividend checks from an oil rent trust
fund since 1982. NorwayB9s citizens receive substantial social
services and invest oil rents in a permanent fund for the
future. Nigeria has yet to establish a similar fund for its oil
revenue stream. This paper explores the oil rent institutions of
Alaska, Norway and Nigeria with a focus on these questions: Are
citizen dividends from oil rent funds currently or potentially a
source of substantial basic income? Are oil rent funds the best
source for citizen dividends or should CDs be based on other
types of resource rents?
The paper recommends full use of information and communication
technologies for transparency in extractive resource industries,
that resource rent from non-renewable resources should be
invested in socially and environmentally responsible ways and
primarily in the needed transition to renewable energy based
economies, and that oil and other non-renewable resource rent
funds should transition towards capturing substantial resource
rents from surface land site values (ground rent) and other
permanent and sustainable sources of rent for possible
distribution of citizen dividends.
The Alaska state constitution claims common heritage rights of
ownership of oil and other minerals for the people of the state as a
whole. Citizen dividend checks are distributed every year in Alaska
out of the interest payments to an oil royalties deposit account
called the Alaska Permanent Fund (APF) created in 1976 after oil was
discovered on the North Slope. The APF is a public trust fund - a
diversified stock, bond and real estate portfolio - into which are
deposited the oil royalties received from the corporations which
extract the oil from the lands of Alaska. The first citizen dividend
check from the interest of the APF was issued in 1982 and was for
$1000 per every person for everyone in Alaska who had resided in the
state for at least one year. Annual citizen dividends have been issued
every year since then, for a total of more than $23,000 per person.
In 2003, each of the nearly 600,000 Alaska US citizens (residents of
Alaska for at least one year) received a check for $1,107 from the
APF. The total amount dispersed was $663.2 million. The $25 billion
investment fund's core experienced stock market losses which led to
the dividend's decline this past year compared to the several previous
years. The amount was $433 less, a 28 percent drop from the 2002 pay
out of $1,540, and a 44 percent decrease from the all-time high of
$1,964 in year 2000. The amount changes based on a five-year average
of APF investment income derived from the bonds, stock dividends, real
estate and other investments.
Alaska relies on oil for about 80 percent of its revenue and has no
sales or income tax. Alaska state government is mandated to invest 25%
of its oil revenue into the APF while the other 75% of oil royalty
revenue is dispersed to other government funds to finance education,
infrastructure and social services. If 100% of AlaskaB9s oil royalties
had been deposited into the APF, it is conceivable that the CD this
year could have been about $4,400 or $17,600 for a family of four. But
then there would have been no funds for roads, education and other
public services and no funds available to run the state legislature -
a libertarian dream fulfillment or a social and economic disaster,
which one we will never know. If state services were to have been
maintained while 100% of oil royalties were deposited in the APF,
there would of course have been the need for income, sales and other
taxes on wages and production.
At the end of the 2002 fiscal year, the state of Alaska had a deficit
of nearly $400 million. State lawmakers frequently debate whether the
APF should be used to help run state government, but the Fund is
protected by law from being used for government expenditures. Rather
than cutting into the Fund and citizen dividends, others are proposing
an increase in oil rents and royalties from oil corporations.
On February 5th of this year of 2004, several Democratic
Representatives filed legislation to help Alaskans recover a fairer
share for their oil. That same week former Alaska Governors Jay
Hammond and Wally Hickel stated that it is time to review the fairness
of oil tax exemptions contained in a 1989 law known as "the ELF",
or Economic Limit Factor. Their viewpoint is that ELF gives
unjustified tax exemptions. The Alaska Fair Share bill would redress
the Economic Limit Factor and meet the constitutional obligation to
make sure AlaskaB9s oil provides B3the maximum benefit to the peopleB2
as mandated by the state constitution.
Because of the ELF statute tax breaks, AlaskaB9s oil production tax
rate has plummeted from 13.5% in 1993 to 7.5% today, and by 2013, it
would be down to 4% if the law is not changed. Also because of ELF, 11
of the last 14 fields developed since 1989 pay none or almost none of
AlaskaB9s 15% Production Tax. While the stateB9s share for Alaska oil
has fallen, corporate oil profits have soared. BP and Conoco Phillips
reported net earnings of $9 billion and $7 billion respectively last
year. According to the Department of Revenue, at recent oil prices of
$30 per barrel the annual share corporations receive for Alaska oil
would exceed total state oil revenue by $1.2 billion.
The Alaska Fair Share bill establishes a modest minimum production
tax of 5% and would raise an additional $400 million in revenue this
year. That approximates the current state budget gap. The bill raises
more at higher prices per barrel, and an additional $100 million at
average prices, according to the Department. The bill also lets the
state share in profits above $20 per barrel by slowly increasing the
severance tax above that price. To encourage development, the Alaska
Fair Share bill reduces the severance tax rate at low prices, when
companies face the prospect of reduced profits, and possible
Passage of the bill would alleviate state government expense
shortfalls, and would possibly result in higher citizen dividend
payments as more funds would be deposited into the APF. We cannot
predict this for certain, however, as the CDB9s come from the
investment portfolio interest, are averaged over a five year
investment period, and determined by the portfolio performance.
We do know that due in large part to the citizen dividend payments
combined with the happy consequences of no state income or sales
taxes, Alaska is the only state in the United States where the wealth
gap has decreased in the past decade. The citizen dividends from the
APF are an important and significant source of income, especially for
rural families maintaining more land based subsistence lifestyles.
Norway, one of the world's richest economies, is a model of prudent
economic management of resource wealth. So states the IMF 2000 Article
IV consultation with Norway. Norway is the top non-OPEC oil exporter,
the world's third-largest exporter of oil, and pumps about 3.2 million
barrels per day. Norway's oil and gas industry underpins the economy,
providing up to 25% of the country's gross domestic product. This
country of nearly four and one half million people has a steady growth
rate, almost no poverty, and negligible unemployment. Norway has a
diverse economy based on agriculture, forestry, fishing and
manufacturing, among other things, and its oil industry has developed
amid much planning, bargaining, and public debate.
The most recent U.N. Human Development Report ranks Norway the number
one place in the world to live, based on a cocktail of indicators
about health, wealth and social outlook. Nearly 1% of GDP is spent
each year to fight global poverty and enhance peace. Oslo often plays
a mediating role in foreign conflicts, from efforts to reconcile North
and South Korea to the now foundering Middle East peace process.
Norway has created an economy that retained its progressive tax
structure, re-invested its oil profits throughout the economy, and
saved money to cushion future market shocks.
Norway struck oil in the North Sea in the 1960s. Norwegians' best
defense against the decline of the industry that has made it the
world's fourth-wealthiest country is the State Petroleum Fund which is
managed by the national Norges Bank. Parliament created the oil fund
in 1990, but the state had its first budget surplus only in 1995.
Until then, oil income was used to pay down Norway's staggering
foreign debt from the tough years before North Sea riches could be
exploited. A substantial amount of the profits from the exploitation
of a resource that is viewed as belonging to all Norwegians, not just
the current generation, is invested in foreign stocks and bonds. The
state-owned fund guards against spending too freely on public sector
services in boom years so as not to lay off droves of state workers
when the economy goes bust.
The Petroleum Fund is an instrument designed to prevent Norway's
substantial oil profits from being taken too rapidly into the economy.
State bank officials and government leaders believe that dispersing
oil revenues directly would overheat the Norwegian economy and
suppress private sector growth. Their view is that the resource rent
collected from the sale of their natural wealth of oil should be
Norway has extracted only about 30% of its known oil resources in the
three decades and reserves are expected to last 40 more years. But the
oil that's left is mostly in depths, distances and quantities that
make its extraction less likely to produce profits of the magnitude to
which the country has become accustomed.
From the perspective of some, Norway focuses more on how to
administer and distribute the assets already acquired than on how new
value is to be created. There are generous benefits for both men and
women of eight weeks' vacation, liberal sick leave and day care that
is reliable and inexpensive. Three-year maternity leaves, broad
part-time opportunities and creative application of telecommuting help
keep women in the work force. State assistance to single mothers is so
generous that there is no need for a father's income.
Norway's State Petroleum Fund is now worth about $60 billion. Many of
Norway's citizens fail to see why they should pay some of Europe's
highest tax rates when Norway's crude output is worth about $7,000 a
year for each citizen, about one fourth of per capita GDP of $28,433.
If the $60 billion is invested for a rate of return of 10%, then each
Norwegian citizen could receive $1333 as an annual CD. The state's
priority instead is to conserve and build the Fund and funnel fund
revenue into social benefits.
Two thousand years ago, Pliny the Elder wrote that the two greatest
curses of civilization were the discovery of silver and gold. Perhaps
oil and gas should be added to the list of natural wealth that ends up
damaging more then helping people in many parts of the world that are
rich in subsoil resources. This has certainly been the case in
There have been 28 wars waged in Africa in the past three years over
the control of mineral resources, many of them in West Africa.
Conflicts in Nigeria have been ongoing since oil was first discovered
four decades ago. Nigeria is Africa's most populous nation AD home to
more than 130 million people, or one-sixth of the population of the
African continent. The giant of West Africa, Nigeria has half the
areaB9s population and one of its most highly educated workforces.
Nigeria is the fifth-largest supplier of oil to the United States. The
Bush administration has recognized African oil as a key US strategic
interest as the country seeks more stable sources of petroleum outside
the turbulent Middle East.
Nigeria is potentially Africa's richest country. As the world's sixth
largest producer of crude oil, with huge reserves of mineral and
agricultural riches and manpower, it should be enjoying some of the
highest global living standards. But it has some of the lowest living
standards in Africa. Surveys conducted by Nigeria's Federal Office of
Statistics show that in a 16 year period between 1980 and 1996,
Nigeria's poverty level rose from 28 to 66 percent. GDP per person in
1982 was $860, in 1996 it as $280, and now reported to be $290.
Numerically, while 17.7 million people lived in poverty in 1980, the
population living on less than US $1.40 a day, rose to 67.1 million by
Northern and southern Nigeria are essentially two different
countries. Some view the oil producing region of the Niger Delta in
the south as a sort of internal colony of Nigeria. Home to 15 million
impoverished people, the Niger Delta region produces 90 percent of
Nigeria's wealth. Under the swamps and mangroves of one of the world's
richest ecosystems lie vast reserves - an estimated 40 more years of
crude and a century of natural gas. The first oil was produced here in
1956. After 40 years of production, there are rutted roads, decrepit
schools, few health clinics, no conduits for running water, and
polluted creeks and farmlands. There have been dozens of oil spills
and gas flares spew carbon dioxide 24 hours a day. The Niger Delta is
one of this country's poorest regions, despite its oil wealth. Most
people are struggling to survive on less than $1 a day. Away from the
main towns there is no real development, no roads, no electricity, no
running water and no telephones.
Most of the oil that has earned Nigeria close to US$340 billion since
production began over four decades ago has come from the Niger Delta
onshore sites. Some put the number at $300 billion with about $50
billion "disappeared overseas" meaning stolen by corrupt
officials. Shell and other western oil companies extract oil worth an
estimated $150 billion a year in recent years from the area. A rough
estimate is that Nigeria earns some $10 billion every year from oil.
Based on NigeriaB9s 1988 population of 100 million, if Nigeria had
distributed the entire $340 billion it has received in oil exploration
up until year 2000, over a forty year period, the citizen dividend per
person per year would have been about $85. Based on the figure of $10
billion that Nigeria earns every year from oil and a current
population of 130 million, distributing the full amount as citizen
dividends would yield about $77 per year per person. Based on oil
extraction worth of $150 billion a year from the area, and a resource
rent of 10% (or $15 billion) charged by the Nigerian government, the
annual citizen dividend would be about $115 per person per year.
As noted earlier, GDP per person in 1982 was $860, in 1996 it had
fallen to $280. Based on the current GDP of $290, adding the $115
dividend, would bring the income per person per year to $405. For a
family of four, that would be $1620 per year with the dividend ($1160
without the dividend). Based on the GDP per person in 1982, a family
of four would have earned $3440. That same family in 1982 with the
dividend of $85 added would have had $3780. While a citizenB9s
dividend in Nigeria would mean a significant increase in annual
income, one must note the vastly more substantial decrease in GDP from
1982 up until this time.
After the discovery of oil and with the high exchange rate of US
petrodollars compared to Nigerian nairas, palm oil, ground nuts and
other previous export products of Nigeria were for the most part
eliminated. NigeriaB9s economy had been mostly subsistence agriculture
and fishing, and with the collapse of their few export commodities,
the economy took a nosedive for most Nigerians.
What has become of NigeriaB9s oil wealth? Nigeria was rated the
worldB9s most corrupt country (out of 52) by Transparency
InternationalB9s Corruption Perception Index. Much has been made of
the fact that money generated from Africa's oil reserves has been lost
in corruption, mismanagement and violent conflict. In Nigeria, an
estimated $4 billion in government funds was stolen by the
dictatorship of General Sani Abacha in the 1990s. Some estimate that
as much as $50 billion in oil revenue has been stolen since Nigeria
first began production.
Faced with severe balance of payments problems in the mid 1980s, the
then military ruler, General Ibrahim Babangida, adopted International
Monetary Fund and World Bank advised structural adjustment programs.
The key objective was to ensure that Nigeria serviced its external
debt of US $28 billion and maintained macro-economic stability, while
cutting back on social spending. Starved of funds, social service
institutions began to decay and service delivery in schools and
hospitals sharply declined. The World Bank estimates that public
spending per capita on health is less than $5 and as low as $2 in some
parts of Nigeria, contrary to $34 recommended for low-income countries
by the World Health Organization. Infrastructure and utilities began
Comparing the $4 billion stolen by Abacha to the $28 billion in
external debt that Nigeria was forced to pay by the IMF/WB advised
structural adjustment programs, it seems that a case could be made
that the greater crime can be found in the neoliberal economic system.
As has happened to many other third world resource rich countries,
government leaders were urged to use the oil and mineral wealth
royalty payments to secure loans for their countries and to buy
military equipment and other foreign made commodities. Then the
accumulated debt was called in on the backs of the people as a whole.
The IMF and WB could have insisted that a transparent oil rent fund
similar to the Alaska Permanent Fund be established as a condition for
loans. The fact that the international banking institutions did not
act in a responsible manner by promoting transparent public finance
institutions and socially just structural adjustments programs but
instead put countries into odious debt lends credence to the position
that these institutions were established to maintain the predominance
of the US dollar as the major global currency over and above any
humanitarian or even good governance objectives.
What might happen to the people of Nigeria in the years ahead?
President Obasanjo and his administration intend to increase Nigeria's
oil reserves to 50 billion barrels by 2010 and to raise its production
capacity to five million barrels per day by 2010. Confirmed offshore
oil deposits has increased from about 30 percent of the country's
total reserves in 1997 to about 50 percent today. As Nigeria moves
closer to the reserves and production targets set by Obasanjo, this
percentage is likely to increase to more than 70 percent. Since oil
production for Nigeria is set to move increasingly offshore of the
Niger Delta, people in the region are concerned that they will be left
behind once again with no share of the federally controlled oil
wealth. Nigerians would be wise to revamp and diversify their economy
sooner rather than later.
Given the extent of the corruption, violence, destruction and
environmental devastation, perhaps the people of the Niger Delta
should make a hard push for the federal government and the oil
companies to repair and restore their land and water and then look
forward to a new day of sustainable development based on renewable
sources of energy and their own capacity for self-directed
development. Any oil resource rents that they can draw down from the
federal government or finagle directly from the oil companies might
better be directed towards capping and tapping the dozens of natural
gas flares to provide an energy source for the region that will help
it transition to renewable energy of wind, solar, and microhydropower.
Additionally, transparent, interest free (perhaps a 2% management fee
only) revolving loan funds for ecovillage and sustainable development
projects could be established with the oil revenue, either managed on
the federal level or via separately mandated funds on the state level.
Thus the oil revenue would be used for internal development projects,
not invested externally as is the case with the Alaska and Norwegian
permanent funds. As these projects proceed, and the economy gently
expands, land values will rise and these funds could then transition
towards a surface land rent and distribution fund. A portion of these
funds could then be distributed as citizen dividends.
Let us note here that land based taxes and land value recapture
policies are recommended in the 1996 Action Agenda of the UN Center
for Human Settlements, a document agreed to by all UN member states.
The approach was also strongly promoted by ecological economist Herman
Daly of the University of Maryland in a very important speech that he
gave to the World Bank on April 30, 2002. Although Professor
Sala-i-Martin at Columbia University recently wrote a paper advising
the World Bank to help establish a fund in Nigeria similar to the
Alaska Permanent Fund, those of us who have been advocating for a
Niger Delta Fund are now thinking that a sustainable development focus
would be better than using the oil revenue for citizen dividends in
terms of overall wealth creation for the region.
Nigeria newspapers earlier this week gave us some positive and
hopeful stories. President Olusegun Obasanjo has fully endorsed the
Extractive Industries Transparency Initiative (EITI) and has
inaugurated the National Stakeholders Working Group, a 28-person team
which will work to publish all payments made by and to its
multi-billion dollar oil industry. Obsanjo wants to hold to account
the Nigerian National Petroleum Corporation and its international
partners, including Chevron Texaco and ExxonMobil, the Anglo-Dutch
major Shell and France's Total.
President Obasanjo also said that whatever resources the country gets
from extractive industries should be invested in B3renewable and
non-depleting aspects of our national economy. What we should, of
course, not do is, advertently or inadvertently, waste these resources
because...they are not renewable.B2 He further stated that B3apart
from being non-renewable, I have said on a number of occasions that
what God has put in the soil for Nigerians are put in the soil for
past, present and future Nigerians... therefore, those of us who are
managing it must manage it for all Nigerians - past, present and
future. And we cannot do that unless we are transparent...B2 Other
good news out of Nigeria this past week is that Obasanjo signed into
law the Allocation of Revenue Act 2004 which abolishes the dichotomy
between onshore and offshore oil production in respect of the
principle of derivation for the purposes of allocation of oil revenue
accruing to the Federation. This announcement was received with
jubilation in the Niger Delta states where state officials described
it as a victory for the B3down-trodden people of the Niger Delta.
All of this is also very good news for those of us working to secure
resource rents for the people worldwide and to underpin our political
democracies with earth rights democracy ethics and policies.
As the world turns, in a case being investigated by the US Justice
Department and the FBI, it is alleged that Halliburton paid over $100
million to bribe Nigerian oil ministry officials and $200 million to
bribe government officials surrounding the award of the Nigeria
Liquified Natural Gas project between 1995 - 2002. A Halliburton
spokesperson said the company has handed over documents to the Justice
Department but insisted that the company did no wrong. She said that
Halliburton always maintains the highest ethical business standards.
CLIMATE CHANGE AND OTHER ENVIRONMENTAL CONSIDERATIONS
Some environmentalists raise the concern that citizen dividends and
social services based on petroleum and other nonrenewable resources
rents makes it that much more difficult to shift to renewable sources
of energy. Alaskan representatives frequently have voted to open up
the Alaska National Wildlife Refuge and other areas for more oil
drilling. This writer's first response to this concern is that if
citizens do not get a rightful share of these resource rents, then
corporations will capture even greater amounts of surplus profits.
While this is true, we need to look at the issue in a holistic way.
From the vantage point of a planetary civilization, we clearly need
to shift to renewable energy sources. There is clear and compelling
scientific evidence of global warming. Climate change is one of the
most pressing environmental problems of our time. Carbon dioxide and
other gases released by fossil fuel consumption and deforestation is
trapping heat in our atmosphere for 100 years or longer, with
devastating environmental consequence. It is time to go full throttle
in addressing this enormous challenge.
We need to use oil resource rents to shift to renewable energy and
sustainable economies. Both the Alaskan and Norwegian petroleum funds
invest in stocks, bonds and real estate. Interest from these
investments are distributed as citizen dividends in Alaska and for
social services Norway. The priorities of the fund portfolios need to
be scrutinized and revamped. Currently the investment portfolios are
mandated to follow the "prudent investor rule" meaning that
managers must find the balance point between highest profits and
lowest risks. Fund investments are not based on or screened for
socially and/or environmentally responsible criteria.
Furthermore, those of us working for a full range of resource rents
as the basis for earth rights democracy view oil rent fund investment
in real estate worldwide as an expropriation of surface land resource
rents from other nations and thus are not a just source of interest
income for the citizens of oil rent fund countries like Alaska and
The Alaskan and Norwegian funds, and the Nigerian fund if it is
established, needs to have socially and environmentally responsible
criteria. Investments should be made in renewable energy - wind,
solar, green hydrogen, microhydropower - and in reforestation and
other environmental restoration activities. A portion of the funds
should be made available as interest free (suggested 2% - 3%
management fee) revolving loan funds to people in developing nations
to help finance their efforts for sustainable development.
A criteria of the loans should be that the communities receiving the
loans begin implementing surface land value (ground rent) recapture in
their towns, regions and nations. Land value based resource rent
funds, if full ground rent is collected for the people as a whole,
promotes land reform and affordable land access for current and future
generations in addition to generating funds for public benefits and
In the US about one half of corporate profits comes from real estate
related activities so we know that resource rents from surface lands
could be a substantial source of funds for basic income and citizen
dividends. In addition to land sites, rents from the electromagnetic
spectrum, water power points and satellite orbital zones should be
sourced for citizen dividends in the future.
In concluding this consideration of oil resource rents as a basis for
citizen dividends and basic income payments, here are three key
(1) full use should be made of information and communication
technologies for total transparency in revenue raising and expenditure
on the part of both government and extractive resource industries, as
modeled by the Alaska Permanent Fund and promoted by the Extractive
Industries Transparency Initiative;
(2) resource rent from non-renewable resources should be invested in
socially and environmentally responsible ways and primarily in the
needed transition to renewable energy based economies; and
(3) oil and other non-renewable resource rent funds should themselves
transition towards capturing substantial resource rents from surface
land site values (ground rent) and other permanent and sustainable
sources of rent, such as hydropower points, electromagnetic spectrum
and satellite orbital zones.
Alanna Hartzok is Co-Founder and
Co-Director of Earth Rights Institute, Vice President of the
Council of Georgist Organizations, and UN NGO Representative for
the International Union for Land Value Taxation. Other published
articles of hers are posted at Contact info: or 717-264-0957.