The Green Paradox & Electric Vehicles
The Green Paradox is a phenomenon that occurs when climate policies geared towards mitigating climate change effects backfire and have the opposite effect. This occurs mainly because companies with interests in carbon-intensive industries are threatened by a shift from a fossil-fuel economy to a renewables-based economy and tend to increase production to maximize lifetime profits. Oil companies tend to be the main perpetrators of this fear-induced increase in fossil fuel extraction. The idea that climate policy has an undesirable backward effect was introduced in ‘Public Policies against Global Warming’ by Hans-Werner Sinn (2008), which found its inspiration in a paper co-authored by Ngo Van Long in 1985. Sinn’s contributions also examine topics such as German reunification, the “bazar” economy, immigration into Europe, and the European financial crisis. Essentially, Sinn introduces the argument above by explaining how “levying a steeply rising carbon tax or subsidizing the use of renewables, owners of oil wells and gas fields anticipate capital losses on their underground reserves. They are therefore encouraged to extract and sell their oil and gas reserves more quickly” (See Source 1). I intend to explore the case of electric vehicles (EVs) and how they are inducing this paradox and subsequently driving demand for oil upwards.
With sales of EVs steadily rising around the world, it is curious to see how the oil industry has been greatly increasing its production plans in recent years. In the United States, this is particularly prominent as the government offers subsidies to consumers who purchase electric vehicles, which have slowed the purchasing of gas and diesel-powered vehicles. This means less oil being consumed in the fuel industry which has forced oil producers to double their efforts in order to match their historic revenue measurements. On September 12th, 2023, Faith Birol, director of the International Energy Agency, wrote in the Financial Times that the IEA is now expecting a global peak in demand for oil, gas, and coal in 2030. Birol attributed this to the recent changes in global energy policies and the sharp increase in demand for EVs and sustainable energy systems. Policies such as the carbon tax, government subsidization of EVs, and wind/solar energy solutions have helped facilitate this sharp incline. EVs are expected to dominate global car sales by 2030, with China being the fastest-growing market for EVs. If countries continue facilitating this growth through the development of charging stations and electricity infrastructure, demand for oil will drop by a quarter of the current metric.
Oil companies have attempted to slow this growth by lobbying to hold off further progress and inventing reasons to favor fossil fuels over renewables. One of these fallacies is that EVs are worse for the environment than combustion engine vehicles due to the high amount of lithium mining and plastic production needed to manufacture the vehicles. Some fossil fuel companies such as BP and TotalEnergie have invested in renewables, but these investments are offset by large investments in fossil fuel exploration ventures. In summary, oil companies are scrambling to extract the maximum amount of profits they can before their asset bases become “stranded” and leave them with no market share in the energy market. The growth in climate policies facilitating the demand for EVs and sustainable energies is being offset by this scramble and effectively nullifying any decrease in carbon-intensive industries.
Source 1: van der Ploeg, Frederick. “Breakthrough Renewables and the Green Paradox.” Finanz — Archiv : Zeitschrift für das Gesamte Finanzwesen 74.1 (2018): 52–70. ProQuest. Web. 5 Feb. 2024.
