Oil producers must reasonably suppose that, as global warming continues and provokes ever-greater concern, restrictions on demand will grow tighter. Further alternative energy sources are also likely to be developed. So they are likely to perceive high probability of downward pressure on prices in future. The result is a strongly enhanced incentive to extract and sell resources now, to whichever country will buy them, and then to invest the proceeds. Producers may even step up production.
Professor Sinn argues persuasively that this “green paradox” may help to explain why, despite the Kyoto climate-change treaty and the environmental efforts of many countries, fossil fuel use and CO2 emissions have continued to climb unchecked. He makes the case that, unless energy-consuming nations can form a largely loophole-free united front – which seems improbable – this paradox will make a nonsense of policies such as emissions trading.
Worse, the report highlights how the unstable politics of oil-producing states in the Middle East and South America reinforces their rationale to keep pumping oil for whatever price the market sets. Since these nations’ rulers cannot be sure of staying in power indefinitely, they face an extra incentive to cash in while they can.
Why oil rulers won’t go green