Before his nation discovered petroleum, its president idled the power plants whenever he traveled abroad.  The people were left in the dark, suffering from their leader’s absence.  A boy once asked about the blackouts, and the president’s retort—“This is my house, and I can turn off the lights if I want”—reveals the mindset of entrenched leaders.  Good luck influencing them.

Yet maybe they should be following the American example.  Our energy policies—based primarily on the private ownership of mineral rights—have resulted in prices that are among the lowest in the world:

indexed-prices

The impact of shale on American manufacturing has been particularly impressive:

shale-provisions

I’ve spent much of my career working with energy ministries in Asia, Africa, and South America.  Our leisurely dinners often lasted long into the tropical night.  Some of my best policy debates took place in nations most Americans would struggle to find on a map—places like Suriname and Guinea Bissau.  Certain understandings cannot be taught in Washington committee rooms.  They can only come from actually being there.

If foreign energy policy is to be effective, it needs to pursue five principles:

  • Citizen Incentives. While other nations are unlikely to adopt private mineral ownership, proxies can create similar incentives.  For example, Alaska distributes a portion of state mineral income annually to each citizen in the form of a royalty check.  Another option is a microfinance/educational royalty, which would divert a percentage of production to entrepreneurial and tuition loans.  This approach parallels the way that many Americans use mineral income to invest in businesses and pay college tuition.  Such proxies (i) give citizens an incentive to support energy development and (ii) allow mineral wealth to be efficiently dispersed via decisions of many individuals.
  • Pilot Programs. Just because a policy worked in the US does not mean it will work elsewhere.  The 20th century philosopher Karl Popper cautioned that policy disasters often stem from the adoption of utopian ideas without testing them first: “[g]reat men may make great mistakes” (The Open Society and Its Enemies).  Let American policies be tested as pilot programs, and proven to work—or not.  After all, energy is a game of decades, not days.  We have plenty of time to get it right.
  • Political Pragmatism. Foreign energy policy must focus on what can be practically accomplished.  Even small steps can be meaningful, though.  The below table shows how a 1% educational royalty could send thousands of Africans to college.

1-royalty-table

Nor does a 1% royalty require that anyone sacrifice their planes and palaces.  In fact, leaders should view such investments as longevity insurance.  The Internet enables everyone to compare their opportunities to people residing in other nations, thereby making already precarious regimes even more so.  It’s harder to get away with squandering national treasure than it used to be.

  • Leading from Behind. The Japanese are masters of leading from behind.  There’s even a word for it: ringiseido.  I spent several months in Tokyo and Kyoto negotiating with a Japanese trading house.  My colleagues there taught me how to suggest positions privately, allowing them to eventually become the most senior person’s “idea.”  If other nations appear to be parroting America, their leaders could lose face (mentsu).  Instead, we need leaders to adopt policies as their own—so they gain face (kao o tateru).  America should be focused on achieving results; not on claiming credit for them.
  • Redeploy Foreign Aid. While most governments rely on taxation of citizens, others court corporations and foreign nations.  As the below table illustrates, there’s a strong correlation between resource wealth and foreign aid:

foreign-aid-table

Foreign aid and mineral wealth also have something sinister in common.  Both fund the government without any accountability to its people.  In contrast, nations relying on taxation must be responsive—or else citizens will stop paying taxes.  The more a government relies on aid and minerals, the less accountable it is to the electorate.  Foreign aid should be redeployed in support of specific policies (or eliminated).

Taking all five elements together, the Department of Energy could work behind the scenes with an African nation to design a modest 1% royalty dedicated to entrepreneurial lending.  The royalty would start as a pilot program at a single oil field.  Local banks would offer loans to area residents, giving them a direct stake in the project’s production.  Foreign aid dollars would help establish and fund the program.  If it succeeds, the nation’s president would take credit in visits to impacted communities.

The purpose of my Reimagine Energy talks is to discuss ideas for improving policy that could be supported by both Democrats and Republicans.  Energy policy cannot be confined to the borders of any nation.  After all, the CO2 emissions of all countries end up in the same atmosphere.  It’s also not a coincidence that most of the world’s conflict zones sit atop natural resources.  These states are exporting refugees and terror along with their minerals.  American foreign policy is lacking a coherent energy component and Democrats and Republicans alike should start considering ways in which we can help other nations redeploy energy wealth to their advantage—and the world’s.

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About the Gaille Energy Blog.  The Gaille Energy Blog discusses issues in the field of energy law, with weekly posts at http://www.gaillelaw.com.  Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of two books on energy law (Shale Energy Development and International Energy Development).