Mining Goes Digital – Mueller et al. (Eds)
© 2019 Taylor & Francis Group, London, ISBN 978-0-367-33604-2
3
The so-called “Green Paradox”
Ansgar B. Bendiek
HOCHTIEF PPP Solutions GmbH, Germany
Maximilian P. Bendiek
Technical University Clausthal, Germany
ABSTRACT: Global warming is rising; humanity must act urgently. Some countries have
limited their CO 2 emissions through the Kyoto Protocol. Despite this, projections for global
CO 2 emissions are to go up in 2018 by 2.7%. In the so-called “Green Paradox”, Sinn 2012
is promoting a supply side approach to reduce global warming. The temporal allocation of
resource production is a portfolio optimization issue. The basic assumption made by Sinn
is that resource owners behave as described by Hotelling, 1931. For the world petroleum
market, it is being demonstrated that only the behavior of a part of the producers (e.g. Saudi
Arabia) can be explained by the theory established by Hotelling. Therefore, the supply side
approach outlined by Sinn, a tax on oil production, which is now high and declines over
time, would incentivizes a constant increase in the oil production, which would increase CO 2
emission further.
1 INTRODUCTION
The Global warming is rising; humanity must act urgently. Some countries have limited their
CO 2 emissions through the Kyoto Protocol. Despite this, projections for global CO 2 emissions
are to go up in 2018 by 2.7%. In 2017, they increased by 1.6%, having flattened out between
2014 and 2016. The reasons? The use of oil and gas keeps growing, and some countries are
still using coal to fuel much of their economic growth (Figueres, 2018). The Global Carbon
Project released the findings on 5 December at the 24th Conference of the Parties to the
United Nations Framework Convention on Climate Change (COP24) in Katowice.
In the so-called “Green Paradox” (Sinn 2012), Sinn deals with a solution to global warming. He describes what is generally acknowledged, the reduction in demand for fossil energy
in the Kyoto countries has resulted in a temporary reduction in the world market price and
caused an increase in demand in those states (US and China) that do not reduce emissions.
The obvious solution would be a reduction in CO 2 emissions by a global CO 2 tax on the
demand side (as it is poorly practiced in the EU).
However, Sinn is promoting a supply side approach. His argument is that ultimately the
resource owners determine how much carbon is produced. To reduce CO 2 emissions, the
production volumes must be shifted into the future. The temporal allocation of resource production is a portfolio optimization issue. He proposes some measures so that resource owners
will reduce their production volumes today and shift it into the future. The main measure is a
tax that should be high today and being reduced over time. This makes it more attractive for
the resource owners to reduce their production today and benefit from higher prices in the
future. The underlying concept is that of a warehouse.
For the most important market for fossil energy, the world petroleum market, it is investigated whether the resource owners behave as described by (Hotelling, 1931), which is the
basic assumption made by Sinn. It is being demonstrated that only the behavior of a part of
the producers (e.g. Saudi Arabia) can be explained by the theory established by Hotelling.
© 2019 Taylor & Francis Group, London, ISBN 978-0-367-33604-2
3
The so-called “Green Paradox”
Ansgar B. Bendiek
HOCHTIEF PPP Solutions GmbH, Germany
Maximilian P. Bendiek
Technical University Clausthal, Germany
ABSTRACT: Global warming is rising; humanity must act urgently. Some countries have
limited their CO 2 emissions through the Kyoto Protocol. Despite this, projections for global
CO 2 emissions are to go up in 2018 by 2.7%. In the so-called “Green Paradox”, Sinn 2012
is promoting a supply side approach to reduce global warming. The temporal allocation of
resource production is a portfolio optimization issue. The basic assumption made by Sinn
is that resource owners behave as described by Hotelling, 1931. For the world petroleum
market, it is being demonstrated that only the behavior of a part of the producers (e.g. Saudi
Arabia) can be explained by the theory established by Hotelling. Therefore, the supply side
approach outlined by Sinn, a tax on oil production, which is now high and declines over
time, would incentivizes a constant increase in the oil production, which would increase CO 2
emission further.
1 INTRODUCTION
The Global warming is rising; humanity must act urgently. Some countries have limited their
CO 2 emissions through the Kyoto Protocol. Despite this, projections for global CO 2 emissions
are to go up in 2018 by 2.7%. In 2017, they increased by 1.6%, having flattened out between
2014 and 2016. The reasons? The use of oil and gas keeps growing, and some countries are
still using coal to fuel much of their economic growth (Figueres, 2018). The Global Carbon
Project released the findings on 5 December at the 24th Conference of the Parties to the
United Nations Framework Convention on Climate Change (COP24) in Katowice.
In the so-called “Green Paradox” (Sinn 2012), Sinn deals with a solution to global warming. He describes what is generally acknowledged, the reduction in demand for fossil energy
in the Kyoto countries has resulted in a temporary reduction in the world market price and
caused an increase in demand in those states (US and China) that do not reduce emissions.
The obvious solution would be a reduction in CO 2 emissions by a global CO 2 tax on the
demand side (as it is poorly practiced in the EU).
However, Sinn is promoting a supply side approach. His argument is that ultimately the
resource owners determine how much carbon is produced. To reduce CO 2 emissions, the
production volumes must be shifted into the future. The temporal allocation of resource production is a portfolio optimization issue. He proposes some measures so that resource owners
will reduce their production volumes today and shift it into the future. The main measure is a
tax that should be high today and being reduced over time. This makes it more attractive for
the resource owners to reduce their production today and benefit from higher prices in the
future. The underlying concept is that of a warehouse.
For the most important market for fossil energy, the world petroleum market, it is investigated whether the resource owners behave as described by (Hotelling, 1931), which is the
basic assumption made by Sinn. It is being demonstrated that only the behavior of a part of
the producers (e.g. Saudi Arabia) can be explained by the theory established by Hotelling.