Rent from oil: a goldmine

tl,dr: ground rent from fossil fuels is much greater than the negative externality costs of greenhouse gases, implying it is realistic that we can neutralize all emissions in the near future without any further economic deadweight or the need to subsidize other energy sources. The ground rent from fossil fuels represents a massive, poorly managed source of wealth, its entity eclipses many of the modern socioeconomic issues that we face, this includes anthropogenic climate change, a problem strongly associated with the oil industry. Ground rent is the unearned increment that results from the exclusive ownership of a natural resource, it is estimated that up go 78% of profits from the oil industry is ground rent. Norway: a model of oil rent taxation In the late 60s the country of Norway needed to decide how to manage the exploitation of its natural oil reserves. A Norwegian citizen, Farouk Al-Kasim, a geologist formerly employed by the Iraq Petroleum Company, was disillusioned by the nationalization approach that left the industry in his country of origin in a sorry state characterized by corruption and waste. The proposal from Al-Kasim and colleagues was as follows, while a Norwegian State Oil Company was to be established, the market was to be left open to other international companies with one caveat: the state was going to levy a severance tax (nominally an income tax) on companies that engage in extraction. The tax was heavy, equal to almost 100% of the ground rent of oil, in return the companies would be exempt from all other taxes and the country would subsidize R&D and exploration of further deposits. This approach has been characterized as fiscally neutral1, meaning it does not distort market forces and generates no deadweight loss. It also generates massive public income, in the case of Norway a considerable amount of this went to fund a government sponsored pension fund (the Oil Fund) which is now the world’s largest sovereign wealth fund. Fig. 1 the fund recently exceeded 2 trillion USD A number of other polities have implemented similar fiscal policies. The state of Alaska manages a similar wealth fund, the Alaska Permanet Fund, established in 1976, which pays dividend to Alaskan residents, it also contributes to Alaska being the state with the lowest tax burden in the union. In summary, oil rent when properly harnessed, can bring great social wealth without the economic loss that usually comes with most taxation. Of course since oil is mostly valued as a source of energy we can’t neglect to mention its most infamous externality: anthropogenic climate change. The failed policy of the energy transition The approach chosen by the ruling class to tackle the issue of climate change is that of the so-called renewable energy transition. A major change to our energy system, mostly imposed from above with various methodologies, the aim is to phase out fossil fuels to reduce greenhouse gas emissions in a sustainable and permanent way. Perhaps the most important international agreement concerning this transition is the Paris Agreement, an international treaty signed in 2016 by almost every polity on the planet; one of its key aim is to keep global average temperatures increase below 2 °C relative to pre-industrial levels as well as to limit temperature increase to 1.5 °C. “The truth is that we have failed to avoid an overshooting above 1.5 °C in the next few years." António Guterres, U.N. Secretary General, 2025 Ten years after the Paris Agreement we have already failed its goals2. Renewable energy production has increased but not in a meaningful way, and worldwide energy use has increased even more. Fig. 2 fossil fuels are still our dominant source of energy The whole energy transition is currently set to fail, the reasons are many, including: the strong opposition to nuclear power by most green energy advocates the key role played by fossil fuels in our transportation networks for which there is no proper replacement. This failure is made even more painful if one considers the huge amount of public spending that has been used in subsidies and incentives to boost alternative energy sources to make them competitive with fossil ones. The top-down approach is likely the most problematic, without considerable sponsorship renewables would never have achieved the growth that they did, yet on the grand scale all of that was for naught; turns out sustainable energy is actually not sustainable at all, in an economic sense at least, energy sources are selected by a market process to maximize efficiency given a set of resources and the legislative environment, going against that is antieconomical by definition. To meat least, the whole thing was foolish to begin with. The alternative: carbon sequestration Atmospheric carbon on Terra is an element of the carbon cycle. During the cycle carbon atoms can end up in a reservoir for a period of time. Sequestration can be a biological or geological process and t