Sinn oder Unsinn...

Simon writes each week on international issues relating to energy policy.

Writing in the Financial Times this week, German professor Hans-Werner Sinn describes what he terms "the green paradox" ("a green paradox" might have been more suitable, but that's beside the point). By this, he means the unfortunate consequences of future policy to limit carbon emissions being to encourage producers to extract more oil, gas and coal today, before their costs are increased. His solutions: a perfect, "seamless" global emissions cap (easier said than done) or a punitive tax regime on producers (a Sinn Tax?).

How the latter is supposed to operate is a mystery. Who is going to be able to tell Saudi Arabia to hand over the $69 profit it makes on a $70 barrel of oil as a matter of international law? No organization that currently exists could do it, and can't image one that could without giving rise to very serious concerns about democratic accountability and liberty that would outweigh any environmental benefit. It is also worth noting that, with the price of oil in Sinn's vision still high, temptations to cheat would be rampant. From OPEC through the Iraqi Oil for Food program, history has shown attempts - even internationally sanctioned attempts - to compel countries to stop producing their only revenue source to be destined for failure.

The carbon cap, improbably, seems the more viable of Sinn's proposals. But the only way that it will work is the only way that any demand management strategy (most of which he appears to loath) works. The prices for substitutes have to come down. This straightforward observation is completely absent from his argument, but is crucial to it. Without functional and affordable alternative technologies, all the king's horses and all the king's men couldn't keep people from wanting energy products, and the countries that have them from supplying them. A cap changes the definition of what's affordable, moving the equilibrium from, nominally, the cost of producing oil to some other, policymaker-set value. But it doesn't change the fundamental; that unless there's some other way of powering the lights, that oil, coal and gas is going to be produced and combusted.