Green Paradox

The Earth is getting warmer. Yet, as Hans-Werner Sinn points out in this provocativebook, the dominant policy approach--which aims to curb consumption of fossil energy--has beenineffective. Despite policy makers' efforts to promote alternative energy, impose emission controlson cars, and enforce tough energy-efficiency standards for buildings, the relentlessly rising curveof CO2 output does not show the slightest downward turn. Some proposed solutions are downrightharmful: cultivating crops to make biofuels not only contributes to global warming but also usesresources that should be devoted to feeding the world's hungry. In The GreenParadox, Sinn proposes a new, more pragmatic approach based not on regulating the demandfor fossil fuels but on controlling the supply. The owners of carbon resources, Sinn explains, arepre-empting future regulation by accelerating the production of fossil energy while they can. Thisis the "Green Paradox": expected future reduction in carbon consumption has the effect ofaccelerating climate change. Sinn suggests a supply-side solution: inducing the owners of carbonresources to leave more of their wealth underground. He proposes the swift introduction of a"Super-Kyoto" system--gathering all consumer countries into a cartel by means of aworldwide, coordinated cap-and-trade system supported by the levying of source taxes on capitalincome--to spoil the resource owners' appetite for financial assets.

Only if wecan shift our focus from local demand to worldwide supply policies for reducing carbon emissions,Sinn argues, will we have a chance of staving off climate disaster.

Hans-Werner Sinn is Professor of Economics and Public Finance at the University of Munich and President of the CESIfo Group. Author of Can Germany Be Saved? The Malaise of the World's First Welfare State (MIT Press) and other books, he is former president of the International Institute of Public Finance, and former chairman of the German Economic Association.