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Review Of Swarthmore College Works Economics Faculty Works Economics 12-1-2012 Review Of "The Green Paradox: A Supply-Side Approach To Global Warming" By H.-W. Sinn Tao Wang Swarthmore College, [email protected] Follow this and additional works at: https://works.swarthmore.edu/fac-economics Part of the Economics Commons Let us know how access to these works benefits ouy Recommended Citation Tao Wang. (2012). "Review Of "The Green Paradox: A Supply-Side Approach To Global Warming" By H.-W. Sinn". Journal Of Economic Literature. Volume 50, Issue 4. 1145-1146. https://works.swarthmore.edu/fac-economics/352 This work is brought to you for free by Swarthmore College Libraries' Works. It has been accepted for inclusion in Economics Faculty Works by an authorized administrator of Works. For more information, please contact [email protected]. American Economic Association Review Reviewed Work(s): The Green Paradox: A Supply-Side Approach to Global Warming by Hans-Werner Sinn Review by: Tao Wang Source: Journal of Economic Literature, Vol. 50, No. 4 (DECEMBER 2012), pp. 1145-1146 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/23644929 Accessed: 21-09-2017 15:58 UTC JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://about.jstor.org/terms American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to Journal of Economic Literature This content downloaded from 130.58.106.131 on Thu, 21 Sep 2017 15:58:56 UTC All use subject to http://about.jstor.org/terms Book Reviews 1145 to establish a national carbon Cambridge trading and London: system,MIT Press, 2012. Pp. backtracking in several of xv, the269. $29.95. state ISBN 978-0-262-01668-1.and regional trading initiatives, continuing questions JELabout 2012-0650 the sustainability of the European Union Emissions Trading Scheme, and highly This well-written charged book debateby the influential in other political contexts such German aseconomist Australia. Hans-Werner Perhaps Sinn provides U.S. Senator Joe Manchin nontechnical (Democrat readers interested of in the West econom Virginia) best described the ics of newclimate normalchange an alternative in a 2010view from re-election commercial thein supplywhich side of he fossil loaded carbon market. his The rifle and shot a bullet into "Green a Paradox" target is certainly marked controversial "cap and and trade bill." has generated heated debates and series of eco It is impossible to know nomicat this research juncture since it was firstwhether put forward this backlash has dealt a (Sinn fatal 2008). blowIt is probably to notcontinued a first book to development of this policy pick tool,up on the in topic. climate Nonetheless, change for someone or other areas of environmental with reasonable knowledgeprotection. on the issue But of cli the rapid and largely unanticipated mate change as well asemergence the usual treatment of of counter-coalitions on emissions the problem in trading economics and producespublic policy, The a very different outcome Green thanParadox isMeckling—and a pleasant read that does raise likely most other climate some validpolicy questions. scholars—envi sioned as recently as 2010-11. This book is Comingnicely organized, to with terms each chapter with this shift and its larger paving the wayconsequences leading up to the final raises revelation important challenges for of thescholars "Green Paradox." examining It starts with a succinctnot only the anticipated efficiency account of the sciencegains of theof greenhouse market effect, based policy strategies butprovides also evidences the for conditions anthropogenic global under which they would warming, become and highlights credible potential catastrophic can didates for adoption and consequences. implementation The chapter may notin be theof much political arena. Scholars interestlike toJonas readers familiar Meckling with climate are change, exceptionally well-situated yet it setsto upbegin the problem to that weigh the remainder in of on those issues. the book attempts to tackle. Chapter 2 takes a look at the world's energy References supply mix. Fossil fuels are the dominant source Cass, Loren R. 2006. The Failures of American of energy. and Nuclear and renewable options are European Climate Policy: International cleaner Norms, but none is a viable substitute for fossil Domestic Politics, and Unachievable Commitments. carbon at the moment. The author reviews the Albany: State University of New York Press. existing demand-side climate policies, such as Hoffmann, Matthew J. 2011. Climate Governance at the Crossroads: Experimenting with feed-in a Global tariffs, EU's emissions trading system, Response after Kyoto. Oxford and New York: and Oxfordthe Kyoto Protocol, and argues that there University Press. are serious leakage problems in all cases. Carbon Kamieniecki, Sheldon. 2006. Corporate America sequestration and and afforestation are the only Environmental Policy: How Often Does Business options that reduce carbon in the air, yet are lim Get Its Way? Stanford: Stanford University Press. Raymond, Leigh. 2003. Private Rights ited in by Public their respective issues. Resources: Equity and Property Allocation Chapter in Mar 3 focuses on bio-energy and provides ket-Based Environmental Policy. Washington, a series D.C.: of arguments against using it as a perfect Resources for the Future. substitute for fossil fuels. Besides nitrous oxide Barry G. Rabe waste, carbon debt from clearing forests and land Gerald R. Ford School of Public Policy, requirements, there is the tension between energy University of Michigan and food, both of which are carbon-based. When energy prices catch up with food prices, the two The Green Paradox: A Supply-Side Approach markets become coupled because of the one-sided to Global Warming. By Hans-Werner substítutabihty Sinn. of bio-carbon for fossil carbon. The This content downloaded from 130.58.106.131 on Thu, 21 Sep 2017 15:58:56 UTC All use subject to http://about.jstor.org/terms 1146 Journal of Economie Literature, Vol. L (December 2012) resulting high food prices may lead to hunger cri Suppose the demand becomes highly inelastic ses like the Tortilla Crisis in 2007. beyond a certain quantity, which will be the case Chapter 4 switches to discussion on the supply if energy cannot be productive by itself but must side of fossil fuel markets. Simple analysis of sup be used together with other limited factors, then ply and demand suggests that the effectiveness of the resource owners cannot increase extraction the demand-side policies depends on the elasticity without limit as too much supply will make prices of carbon supply. To understand it, the author uses too low for them to be profitable. The very episode the Hotelling model of intertemporal optimization of the Great Recession illustrates that reduction in of depletable resources, and analyzes the resource fossil-fuel demand can indeed reduce fossil-fuel owners' portfolio choice between man-made capi consumption (International Energy Agency 2011). tal and natural capital that remains underground. This is in fact similar to the authors proposed The derivation suggests that, on the socially global cap-and-trade system, which essentially optimal extraction path, the appreciation rate creates a demand curve that is perfectly inelastic. of resources in situ is equal to the market inter Another assumption that ensures that the prices of est rate minus the climate damage, while, on the fossil fuels keep increasing is the absence of a back market path, the appreciation rate equals the mar stop technology that provides a perfect substitutes ket interest rate plus probability of expropriation. to fossil fuels. While the existence of such a tech Therefore, greenhouse externality and insecure nology does not rule out "Green Paradox," as stated property rights lead to an accelerated extraction by the author, it will nevertheless dissolve the cou path, worsening climate change. pling of the energy and food market and the con The last chapter of the book advances the clusions of chapter 3 may be different. Lastly, since supply-side analysis and presents the "Green the author suggests that the episode of declining Paradox," that "(t)he mere announcement of fossil-fuel prices in the 1980s and 1990s may be intentions to fight global warming made the world explained by the "Green Paradox," it would be nice warm even faster" (189). The key insight is that to see if there is a way to test that hypothesis. demand-reduction measures affect carbon supply Overall, the author presents a coherent argu through pressure on future prices. Since the exist ment for more attention on the supply side when ing "green" policies almost always involve increas designing policies to address climate change. Even ing stringency and widening coverage over time, one may have a different opinion on whether the the increasing downward price pressure therefore assumptions that lead to potential "Green Paradox" induces resource owners to expedite extraction hold true in reality, this book does raise an inter and thereby exacerbates the climate problem. To esting and valid point that previous research and avoid such problems, the author proposes a swiftly policy considerations have largely overlooked. introduced "super-Kyoto" globcil consumer cartel with all countries committing to a cap-and-trade References system, as well as a source tax on capital income that gives the resource owners more incentive to International Energy Agency. 2011. "IE A Energy Statis tics." http://www.iea.org/stats/pdf_graphs/29TPES. choose a slower extraction path of their fossil fuels. pdf. The main portion of the book is largely based on Sinn, Hans-Werner.
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