The Green Paradox: Why unilateral emissions restrictions may actually increase fossil fuel production and will always fail to do anything about atmospheric CO2 levels

Periodically, journalists realise that our climate policies are doing absolutely nothing to reduce CO2 emissions. The latest entry in this amusing genre of reporting comes from N-tv and the Deutsche-Presse Agentur:

The planned global production of coal, oil and gas continue to significantly exceed levels required to mitigate climate change. According to a report by the United Nations Environment Programme (UNEP) and leading research institutes, the production planned by countries for 2030 is more than double (110 per cent more) what would be compatible with the goal of limiting global warming to 1.5 degrees Celsius as agreed in the Paris Climate Accords.

More and more coal will be produced worldwide until 2030. Oil and gas production is set to continue rising until at least 2050. “Governments' plans to expand fossil fuel production are undermining the energy transition needed to achieve net zero emissions, creating economic risks and placing the future of humanity in question,” UNEP Director Inger Andersen said. …

The report shows that none of the 20 countries analysed – including Germany – have fully committed limiting production to the levels required to achieve the 1.5-degree target…

Indeed, nothing the developed world does about climate change matters at all. Despite all of the wind turbines and all of the solar farms and all of the electric vehicles, emissions just climb and climb year after year.

In 2008, the German economist Hans-Werner Sinn christened this phenomenon the “Green Paradox.” The problem, he explained, is that almost all climate policy is focused on fossil fuel consumption, rather than on fossil fuel production:

Many insist that [curbing emissions] depends on each individual, just as curbing the littering of roadsides does. Every individual can help keep the landscape pristine by deciding not to pollute it himself. The more individuals show discipline, the cleaner the roadsides. But that analogy fails on on edecisive point: it doesn’t consider that decisions to pollute or not to pollute the climate aren’t independent of one another, but are linked directly to other such decisions through teh global market for fossil fuels. What one country doesn’t throw away will be thrown away by another. The CO2 that we emit into the atmosphere came out of the ground as carbon, and we bought it on the world market for carbon. If the Germans buy and burn less coal, crude oil, or natural gas, the Chinese, say, will be able to buy and burn more. The analogy to littering would make sense only if one could assume that the European Union’s reduction in consumption would translate into an exactly equivalent amount of carbon not being extracted by the oil sheikhs and other resource owners. But what if the resource owners remain utterly unimpressed by Europeans’ efforts to curtail consumption and decide to extract, in every coming year, just as much crude oil and gas as they had planned to extract? The EU’s sacrifices will then exert no influence whatsoever on overall CO2 emissions, as all the oil and gas extracted will be burned somewhere. If the Europeans don’t buy the fuels, someone else will buy them and burn them. ¹

While the climateers persist in their mad drive to restrict consumer behaviour, they address fossil fuel production not at all. This is completely backwards, because production is the true source of emissions. The burning of the fuels themselves – the entire focus of climate policy – is merely a final chemical reaction at the end of the process. You could even push the argument to the limits of defensibility and argue that it is mostly unimportant, because once the fuels are brought above ground, their oxidation and the concomitant release of CO2 will happen sooner or later whatever anybody does.²

Global fossil fuel production continues to increase. Economic contractions, such as those caused by pandemic restrictions, can reduce it, but climate policies have no discernible influence.

Assuming that production remains rigid in the face of expanding net-zero restrictions, we have no hope of reducing the amount of CO2 released into the atmosphere:

The promotion of alternative energy sources such as wind and sunlight doesn’t slow down climate change if the carbon supply is rigid; instead, it increases the world’s energy consumption by the amount brought about by these alternative sources, as the oil and gas wells continue producing and their owners reduce their prices so far as to give rise to a demand that, regardless of “green“ policies, is just as high as it was before. For that same reason, nuclear power as such doesn’t help the climate either if the supply of fossil carbon is fixed. Just as with the “green” energies, nuclear energy adds itself to the fossil variety offered by the resource owners, instead of is displacing it, because it depresses the carbon price sufficiently. The production of biodiesel, ethanol, and pellets is likewise just neutral, because it releases into the atmosphere carbon that photosynthesis had previously removed from it. No positive effects resulting from a displacement of fossil fuels can be observed if supply is price-inelastic.

Of course, as Sinn points out, the “rigid supply” scenario is probably optimistic:

The resource owners regard the tightening of ‘green’ policy measures … as … a way of destroying their future markets. Quite understandably, they try to pre-empt the corresponding wealth losses by extracting and selling their fossil fuels before their markets disappear. That is the Green Paradox: announced future reductions in carbon consumption may have the effect of accelerating climate change now. I suspect that one of the reasons why the prices of fossil fuels fell in real terms from 1980 to about 2000, even though China and India emerged as new consumers in teh market, can be attributed to the “green” sabre-rattling that occurred during that period. Resource owners simply hurried to secure their wealth by extracting their resources before the environmentalists could seize them.

Net-zero restrictions, therefore, aren’t only costly and economically destructive. They also have no hope at all of achieving their own goals. On the one hand, they edge global fossil fuel prices down, and the other hand, they incentivise near-term increases in production, such that global fossil demand remains the same if not slightly higher than in an alternate universe without any climate policies at all.

This analysis is extremely simple and obvious, and it is confirmed by all recent experience. Sinn and random internet bloggers can’t be the only people to have stumbled upon these realisations; they must be known also at the highest tiers of power. In fact we have recent proof that this is so. At the end of October, Robert Habeck’s Ministry of Economic Affairs released a depressing 60-page strategy paper on German “industrial politics” that documents all the ways Habeck’s own policies are deindustrialising the Federal Republic, and that appears to make passing reference to Sinn’s Green Paradox. The relevant passage is buried at the end of section C on the “challenges” Germany faces as an industrial nation:

Another major challenge in the transformation of industry towards climate neutrality lies in international competition. Many countries around the world are pursuing climate protection with less ambition than Germany and the EU. As a result, local companies face competitors on the global market that have no or only low CO2 avoidance costs to bear. The higher the trade intensity in a sector, the greater the risk that production will shift from the EU to countries with lower climate regulation. The resulting carbon emissions would harm our economy and the climate in equal measure.

The only way to curb emissions is via policies targeted at the producers. If our rulers truly believe we’re facing an existential threat, we’d expect them to take drastic measures – at least as drastic as those they’ve deployed against the proliferation of nuclear weapons. They might sanction fossil fuel producers and the countries where they are located, or perhaps even use military force to seize things like oil fields. Less aggressive options would include paying producers to bring less to market, or perhaps simply buying up vast quantities of oil and coal for the purposes of sequestering it indefinitely. These measures would obviously cause worldwide economic catastrophe, but they would also reduce emissions, and what is a little global depression if the alternative is a Thunbergian greenhouse gas apocalypse?

Why climate policies are so stupid and bad is a real problem. I’ve been thinking about this for a long time, and I’ve formulated a few theories:

1) The catastrophising rhetoric is a tool of manipulation and the policymakers themselves don’t believe we’re facing disaster. I think this is certainly the case; all of the tipping-point rhetoric is poorly supported in the scientific literature and the 1.5-degree warming goal is a political construct with no clear foundation in anything. This begs the question, though, of what we’re even doing, if our rulers don’t think climate change is that bad.

2) The Green movement retains many of its early environmentalist trappings and regards CO2 emissions not as a by-product of consuming internationally traded commodities, but as a form of simple pollution (in Sinn’s analogy, “roadside litter”) that any single state can choose unilaterally to restrict. I think this is probably true of the climate activists in general; the moralising focus on individual behaviour and consumption has been a cornerstone of environmentalism from the beginning. If we posit that politicians have to work with the political energy available to them, this could clarify many things.

3) The basic structure of climate policy emerged after the end of the Cold War in 1990. It is a product of the unchallenged liberal American hegemony I have spent so many words on in recent posts. The architects of climate interventions hoped ultimately to impose their demand-side solutions on the entire world, and we’re simply witnessing ideological lag as we wait for the cultural and political forces behind emissions restrictions to catch up to reality. This is at best a partial explanation, because it it still doesn’t explain the useless focus on consumption.

4) Restrictions targeting supply were always considered politically unworkable, because they would artificially induce a worldwide recession that would make the oil crises of the 1970s look like minor market anomalies. Especially in combination with 3), I think there is something to this.

5) Net-zero policies are promoted by bad people with nefarious motives and stopping global warming is a mere pretence. How plausible you find this will depend on your broader attitude towards the empirical reality of climate change. There is certainly a great wealth of scammery afoot in the world of green endeavours, and I find it highly plausible that rival states will increasingly see the promotion of emissions-phobia as a viable avenue of economic warfare. I don’t think this can be a complete explanation, though.

If you have other ideas, I’m eager to read about them.

1. This and subsequent quotes from Hans-Werner Sinn, The Green Paradox: A Supply-Side Approach to Global Warming (2012). No page numbers because, once again, I only have a digital copy.

2. Of course, because CO2 is also absorbed at a fairly high rate via natural processes, the rate of fossil fuel oxidation is decisive, so one shouldn’t lean too hard on this argument.