The end of fossil fuels - rethinking welfare state approaches for rich gulf oil producers

The US Department of Energy revealed a major scientific breakthrough after scientists were reportedly able to produce a fusion reaction that created a net energy gain for the first time. The development, a major milestone in the pursuit of clean limitless energy, was made at the US government funded Lawrence Livermore National Laboratory in California.

Can this level of support to citizens continue with current consumption trends? Is a new economic paradigm now a necessity? Is austerity an eventual requirement? (Creative Commons)

The net gain reaction, which is considered to be the holy grail of zero-carbon power, is a major step towards being able to create a technology one day that could offer a clean and virtually limitless supply of energy.

Scientists have been trying since the 1950s to replicate the same nuclear reaction that powers the sun as part of the global quest to offer clean energy and combat climate change. But, until now, no researchers have been able to produce more energy from the fusion reaction than it consumes. Despite the recent breakthrough, scientists believe fusion power stations are still at least a decade away from commercial use.

Nonetheless, these new emerging technologies have the potential to make fossil fuels a thing of the past. This discovery is a clear and present danger to all oil producing nations, especially Gulf states whose one major export is fossil fuels. It takes only one technological break through to make fossil fuels a thing of the past and redefine the fortunes of oil exporters everywhere.

However, most Gulf oil exporters have been wise to this scenario for some time now. Most have highly successful sovereign wealth funds, and have worked to diversify their economies actively. They have also invested wisely in emerging new energy modalities, but new technological breakthroughs can change the entire energy landscape literally overnight.

What will the death of fossil fuel demand mean for oil producers, and what are the broader implications for Gulf states? Undoubtedly, this will mean the end of the Gulf “welfare state” economy approach as we know it today. Let me explain.

When a child is born in four different countries in the Gulf, the state opens a bank account for the child and makes a monthly contribution to their account ranging from $500 -$1,700 until adulthood.

In these four oil rich Gulf states, nationals are pretty much guaranteed high paying government jobs that give them tax-free incomes, free health care, free education for children up to and inclusive of graduate school, financial support for couples getting married, free housing at adulthood, various subsidies including coverage of utility bills in part, or their provision at next to no cost, and plush retirement benefits for men in the civil service who can retire at age 50 with 85 percent of their salary for life, and women receiving the same benefits who can retire as early as 45.

While the models of provision of government support for citizens across Gulf oil states varies, this support can be very lucrative to say the least. But, assuming oil revenues from fossil fuels dries up, or is severely limited in a decade or less, can this level of support to citizens continue? Is a new economic paradigm now a necessity? Is austerity an eventual requirement?

This depends. Austerity doesn’t have to be the only way forward. Providing additional direct benefits from the national sovereign funds and government owned state owned enterprises (e.g. energy companies) to citizens can also be considered. In some countries this can make every citizen a millionaire, or a multi millionaire, in half a decade, or less. This is easily done by creating a form of direct share ownership of state assets for citizens, or through employee share ownership schemes.

But, what would these immediate windfall gains do to a society where every citizen regardless of age will want for nothing? After all, every one of the four Gulf states I talk about is sparsely populated except for one making direct wealth transfer an easy proposition.

So, would it make sense to share the good fortune of oil revenues with the general populace today? Does it make sense to ensure a bright future for all your citizens before fossil fuels are a thing of the past? That is to provide more, not less, and not go down the path of austerity?

Before anyone reading this gets ahead of themselves, especially if you’re a citizen of one of these four states, know that public policy is moving in the exact opposite direction of what I suggest. Every one of these Gulf oil producers is reducing benefits to its citizens, some drastically, with the exception of one. It’s as if they are slowly cutting off aid that has been provided for decades consistent with their understanding that the oil gravy train will come to an end at some stage. Austerity is now the norm not the exception even with the recent oil price booms these countries have seen.

One thing is for certain, that a debate on the best way forward for securing the future of the citizens of Gulf oil producers is worthy of more study. This is best done now before the economic reality of these countries changes drastically making the current welfare system completely implausible.