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Is a Green Paradox Spectre Haunting International Climate Change Laws and Conventions?

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Is a Green Paradox Spectre Haunting International Climate Change Laws and Conventions? UCLA UCLA Journal of Environmental Law and Policy Title Is a Green Paradox Spectre Haunting International Climate Change Laws and Conventions? Permalink https://escholarship.org/uc/item/5dp5j3zh Journal UCLA Journal of Environmental Law and Policy, 33(1) Author Partain, Roy Andrew Publication Date 2015 DOI 10.5070/L5331028756 eScholarship.org Powered by the California Digital Library University of California Is a Green Paradox Spectre Haunting International Climate Change Laws and Conventions? Roy Andrew Partain* I. INTRODUCTION ................................................................... 62 II. COULD THE UNFCCC WORSEN CLIMATE CHANGE? ......... 64 III. RESEARCH QUESTION AND METHODOLOGY ....................... 67 A. Models of Exhaustible Resources and Green Policies ........................................................................ 67 B. Structure of the Study ............................................... 71 IV. CLASSES OF GREEN PARADOX MODELS ............................. 73 A. Sinn’s Carbon Tax Green Paradox Models ............... 74 1. Anthropogenic Climate Change Created by Market Failures .................................................... 74 2. Rising Carbon Taxes Could Induce Green Paradox Effects ..................................................... 79 B. Models of Rising Carbon Taxes ................................. 83 C. Models of Backstop Technologies .............................. 89 D. Models of Delayed Implementation After Green Policy Announcements ............................................... 93 E. Models of International Carbon Leakage ................. 96 F. Michielsen’s Integrated Model of Intertemporal and Interspatial Leakages ......................................... 99 V. ECONOMIC MODELS OF EXHAUSTIBLE RESOURCES ........ 103 * Assistant Professor of Law, Soongsil University, South Korea. Profound thanks are due to Panos Delimatsis and Jonathan Verschuuren of Tilburg University’s Law School and the Tilburg Institute for Law & Economics (TILEC), who provided much insight and guidance on this paper. Any remaining errors or omissions are solely due to the present author 61 62 JOURNAL OF ENVIRONMENTAL LAW [Vol: 33:61 A. Background of Hotelling’s Models ........................... 105 B. Hotelling’s Model: Optimal Depletion Pathways ... 107 C. Hotelling’s Models: Caveats and Perspectives ........ 111 1. Assumption of Free Market/Monopoly Conditions ........................................................... 111 2. Complete Information on Reserves and Depletion Schedules ............................................ 113 3. Conflagration of Full Depletion and Profit Maximization ...................................................... 117 4. Hotelling’s Rule Part I – Value of Resource ...... 118 5. Hotelling’s Rule Part II – Flexible Schedule of Extraction ............................................................ 121 6. Rising Extraction Costs ...................................... 124 7. Eighth – Secure Property Rights ....................... 126 D. Dasgupta and Heal’s 1974 Green Energy Backstop Model ........................................................ 126 E. Heal’s 1976 Dirty Energy Backstop Model ............. 129 VI. CONCLUSIONS ................................................................... 131 I. INTRODUCTION Could the United Nations Framework Convention on Climate Change (UNFCCC),), and green laws in general, increase greenhouse gas emissions, and thus worsen the threats and risks of climate change? Many economists examining international responses to climate change fear that green laws may backfire under certain circumstances; a phenomenon known as a “green paradox.1 In his controversial book, The Green Paradox, German economist Hans-Werner Sinn goes so far as to characterize this backfire as inevitable.2 Must legal researchers and climate change activists fear that their legal policy efforts will lead to worsening climate conditions? Is there truly no way to avert this green paradox crisis? 1. See, e.g., HANS-WERNER SINN, THE GREEN PARADOX: A SUPPLY-SIDE APPROACH TO GLOBAL WARMING 196 (2012). 2. See id. at 155. 2015] GREEN PARADOX SPECTRE 63 Sinn explains the Green Paradox first by referencing human psychology.3 He claims, “Resource owners aren’t stupid . Arab oil sheikhs, Russian gas oligarchs, and coal barons all have realized that a revolution in the world’s energy mix is underway.”4 As a result, he claims that resource owners are selling off more and more fossil fuel resources while legislative efforts to make alternative energy more cost-effective and popular are increasing.5 This potential green paradox has been echoed by many other economists6 and surely if there are mechanisms within climate change laws and conventions that give rise to green paradox results, legal researchers, legislators, and climate change policymakers should take caution and consider revamping the existing framework of international climate change conventions and associated domestic policies. However, most of these authors rely on two economic models originally developed for studying exhaustible resources: the Hotelling and Dasgupta Heal models.7 If these models are unreliable for green paradox research, then caution should be taken before economists begin to unravel the decades of negotiations that have enabled the existing frameworks. The research of these circumstances requires the combination of legal requirements and economic models. This present study reviews the concern that certain economic models might be problematic in resolving the first question due to certain assumptions built into those models when they were originally designed for other research purposes. However, the analysis presented is intended for an audience of legal researchers; mathematical materials are minimized in the presentation and the evidence is presented in a format familiar to lawyers. Hopefully this research will better enable other legal researchers 3. See id. at 192-96. 4. Id. at 188. 5. Id. at 188-89. 6. See, e.g., Edwin van der Werf & Corrado Di Maria, Imperfect Environmental Policy and Polluting Emissions: The Green Paradox and Beyond, 6 INT’L REV. ENVTL. & RESOURCE ECON. 153 (2012). 7. See id. at 156-58 (performing a review of 32 articles on the green paradox subject and identifying that 19 of those papers utilized some form of either a Hotelling or Heal economic model). 64 JOURNAL OF ENVIRONMENTAL LAW [Vol: 33:61 to engage in broader research on the potential impacts of green paradox models on future climate change laws and conventions. II. COULD THE UNFCCC WORSEN CLIMATE CHANGE? The scientific community broadly holds that the cause of global climate change is primarily anthropogenic.8 To assist in the governance of the dangers posed by global climate change, almost every nation in the world has joined the United Nations Framework Convention on Climate Change (“UNFCCC”);9 many nations have also agreed to the UNFCCC’s Kyoto Protocol.10 8. See, e.g., Intergovernmental Panel on Climate Change [IPCC], Summary for Policymakers, in CLIMATE CHANGE 2013: THE PHYSICAL SCIENCE BASIS. CONTRIBUTION OF WORKING GROUP I TO THE FIFTH ASSESSMENT REPORT OF THE IPCC 17 (Thomas F. Stocker et al. eds., 2013) [hereinafter IPCC FIFTH ASSESSMENT REPORT SUMMARY] (“It is extremely likely that more than half of the observed increase in global average surface temperature from 1951 to 2010 was caused by the anthropogenic increase in greenhouse gas concentrations and other anthropogenic forcings together.”). The IPCC report was co-authored by approximately 830 experts selected from a nomination pool of 3,598 scientists. IPCC, IPCC Factsheet: How does the IPCC select its authors? August 30, 2013. Available at http://www.ipcc.ch/news_and_events/docs/factsheets /FS_select_authors.pdf. See also, e.g., NICHOLAS STERN, STERN REVIEW: THE ECONOMICS OF CLIMATE CHANGE. VOL. 30, 3 (London: HM Treasury, 2006). “An overwhelming body of scientific evidence indicates that the Earth’s climate is rapidly changing, predominantly as a result of increases in greenhouse gases caused by human activities.” Available at http://webarchive.nationalarchives.gov.uk/20100407172811/http://www.hm- treasury.gov.uk/stern_review_report.htm. 9. See United Nations Framework Convention on Climate Change, May 9, 1992., U.N. Doc. FCCC/Informal/84; GE.05-62220 (E) 200705 [hereinafter UNFCCC], available at http://unfccc.int/essential_background/convention/items /2627.php. While presented here as primarily two sets of documents, the underlying reality of the UNFCCC is more complex and evolved; a more complete legal story should include details from the Marrakesh Accords of 2001, the 2005 Nairobi Work Program on Adaption, the 2007 Bali Road Map, the 2009 Copenhagen Accord, the 2010 Cancun Agreements, the 2011 Durban Platform for Enhanced Action, the 2012 Doha Amendment to the Kyoto Protocol, and most recently the 2013 Warsaw Outcomes. This study needs only the basic common predicates underlying all of the these efforts, and thus will limit its discussions to the earlier UNFCCC and the Kyoto Protocol. See source cited infra note 10. 10. See Kyoto Protocol to the United Nations Framework Convention on Climate Change, Dec. 11, 1997, 2303 U.N.T.S. 148 [hereinafter Kyoto Protocol], available at http://unfccc.int/resource/docs/convkp/kpeng.pdf. 2015] GREEN PARADOX SPECTRE 65 While legislators and policy makers sought to prevent the onset of worsening of climate change by the adoption of this convention and subsequent domestic enactments of similar laws, Sinn raised a concern that
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