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Capital Transitioning: An International Human Capital Strategy for Climate Innovation

  • Shi-Ling Hsu (a1)

One question left unanswered by the 2015 Paris Agreement is exactly how the world will meet the daunting technological challenges that lie ahead. This article proposes a global strategy to build up human capital oriented towards two bodies of knowledge: alternative, non-fossil systems of energy generation, delivery and consumption; and a deeper understanding of climate systems that might be geoengineered to reduce atmospheric concentrations of greenhouse gases. Simply committing funding to climate technology is insufficient; a global climate technology policy must take into account the unique growth properties of human capital, and the conditions under which it can grow.

Human capital should be the focus of an international climate agreement for three reasons. Firstly, the wrong kind of human capital (attached to fossil fuel-related methods of energy generation and consumption) has helped to create an unfavourable political economy for climate policy. Secondly, the right kind of human capital (broader, and building on fundamental understandings of energy systems and climate systems) can create a more favourable political economy for climate policy. Thirdly, the technological changes needed for both mitigation and geoengineering technologies are so profound that a human capital stock must be developed with a conscious focus on radical technological change that can be delivered quickly. While individual countries may pursue an enlightened human capital policy on their own, cooperation at the international level would maximize the scale economies of inventive effort.

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For their help and comments, the author would like to thank Jaqueline Peel, workshop attendees at the University of Oregon School of Law, Eugene, OR (US) and at the joint workshop of the International Environmental Law Section of the American Society of International Law and the University of Minnesota Energy Transition Lab, Minneapolis, MN (US), and three anonymous reviewers for TEL. The author would especially like to thank Mary McCormick and the always exceptional library staff at the Florida State University College of Law.

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1 Paris (France), 13 Dec. 2015, not yet in force (in UNFCCC Secretariat, Report of the Conference of the Parties on its Twenty-First Session, Addendum, UN Doc. FCCC/CP/2015/10/Add.1, 29 Jan. 2016), available at:

2 See, e.g., Stone C.D., ‘Common but Differentiated Responsibilities in International Law’ (2004) 98(2) American Journal of International Law, pp. 276301 , at 280–1.

3 See, e.g., Menon A. & Menon A., ‘Enviropreneurial Marketing Strategy: The Emergence of Corporate Environmentalism as Market Strategy’ (1997) 61(1) Journal of Marketing, pp. 5167 , at 52–5.

4 Merrington A., ‘Climate Change Scientist Says More Must Be Done to Meet 2-Degree Target’,, 26 Nov. 2015, available at: .

5 See, e.g., Velicogna I., Sutterley T.C. & van den Broeke M.R., ‘Regional Acceleration in Ice Mass Loss from Greenland and Antarctica Using GRACE Time-Variable Gravity Data’ (2014) 41 Journal of Geophysical Research Space Physics, pp. 81308137 ; Gillis J., ‘2015 Was Hottest Year in Historical Recorded’, The New York Times, 20 Jan. 2016, available at: .

6 Solow R.M., ‘Notes on Social Capital and Economic Performance’, in P. Dasgupta & I. Serageldin (eds), Social Capital: A Multifaceted Perspective (The World Bank, 2000), pp. 69 , at 6; Hsu S.-L., ‘Capital Rigidities, Latent Externalities’ (2014) 51(3) Houston Law Review, pp. 719779 , at 729.

7 Mankiw N.G., Phelps E.S. & Romer P.M., ‘The Growth of Nations’ (1995) Brookings Papers on Economic Activity, pp. 275326 , at 293.

8 Solow R.M., ‘A Contribution to the Theory of Economic Growth’ (1956) 70(1) Quarterly Journal of Economics, pp. 6589 , at 70.

9 Schultz T.W., ‘Investment in Human Capital’ (1961) 51(1) American Economic Review, pp. 117 .

10 Becker G.S., A Theoretical and Empirical Analysis, with Special Reference to Education, 3rd edn (University of Chicago Press, 1993), pp. 3054 .

11 Jorgenson D. & Fraumeni B.M., ‘The Accumulation of Human and Nonhuman Capital, 1948–84’, in R.E. Lipsey & H.S. Tice (eds), The Measurement of Saving, Investment, and Wealth (University of Chicago Press, 1989), pp. 227286 , at 228; Christian M.S., ‘Human Capital Accounting in the United States, 1994–2006’, Survey of Current Business, June 2010, pp. 3136 , available at:

12 Zucker L.G., Darby M.R. & Brewer M.B., ‘Intellectual Human Capital and the Birth of U.S. Biotechnology Enterprises’ (1998) 88(1) American Economic Review, pp. 290306 , at 291.

13 US Patent and Trademark Office, ‘Intellectual Property and the U.S. Economy: Industries in Focus’, Mar. 2012, p. vii; available at

14 Jorgenson & Fraumeni, n. 11 above, p. 228; Christian, n. 11. above, p. 34.

15 Levhari D. & Weiss Y., ‘The Effect of Risk on the Investment in Human Capital’ (1974) 64(6) American Economic Review, pp. 950963 , at 950.

16 Becker, n. 10 above, p. 345.

17 Rauch J.E., ‘Productivity Gains from Geographic Concentration of Human Capital’ (1993) 34(3) Journal of Urban Economics, pp. 380400 ; Acemoglu D. & Angrist J., ‘How Large are Human-Capital Externalities? Evidence from Compulsory Schooling Laws’ (2000) 15 NBER Macroeconomics Annual, pp. 974 , at 10–1, available at:; Heckman J.J., ‘Policies to Foster Human Capital’ (2000) 54(1) Research Economics, pp. 356 , at 5.

18 Lucas R.E., Jr., ‘Making a Miracle’ (1993) 61(2) Econometrica, pp. 251272 , at 252.

19 Ruttan V.W., ‘Induced Innovation, Evolutionary Theory and Path Dependence: Source of Technical Change’ (1997) 1074(444) The Economic Journal, pp. 15201529 , at 1523.

20 Hsu, n. 6 above.

21 Olson M., The Rise and Decline of Nations (Yale University Press, 1982), pp. 4147 .

22 The US Energy Information Administration considers 15 states to be ‘active’ in deregulation or ‘restructuring’, and 7 in a ‘suspended’ mode of deregulation: US Energy Information Administration, ‘Status of Electricity Restructuring by State’, Sept. 2010, available at: Other definitions of ‘deregulation’ may yield different results: e.g., Borenstein S. & Bushnell J., ‘The U.S. Electricity Industry after 20 Years of Restructuring’ (2016 forthcoming) 8 Annual Review of Economics , available at:, pp. 7–8.

23 Brennan T.J. & Boyd J., ‘Stranded Costs, Takings, and the Law and Economics of Implicit Contracts’ (1997) 11(1) Journal of Regulatory Economics, pp. 4154 , at 42.

24 Brennan & Boyd, ibid.

25 Fabrizio K.R., Rose N.L. & Wolfram C.D., ‘Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency’ (2007) 97(4) American Economic Review, pp. 12501277 , at 1266–9, Tables 4 and 5.

26 Krebs T., Kuhn M. & Wright M.L.J., ‘Human Capital Risk, Contract Enforcement, and the Macroeconomy’ (2015) 105(11) American Economic Review, pp. 32233272 , at 3223.

27 Samuelson D. & Ling K., ‘Fragile Compromise of Power Plant CEOs in Doubt as Senate Debate Approaches’, E&E Daily , 5 Aug. 2009, available at:

28 Bolen M., ‘Peter Mansbridge Was Paid by Oil and Gas Lobby for Speech’, The Huffington Post Canada, 26 Feb. 2014 , available at:

29 Joskow P.L., ‘The Role of Transaction Cost Economics in Antitrust and Public Utility Regulatory Policies’ (1991) 7(Special Issue) Journal of Law, Economics, and Organization, pp. 5383 , at 67.

30 See, e.g., Energy Institute, Deloitte & Norman Broadbent, ‘Skills Needs in the Energy Industry’, Jan. 2008, available at:

31 Mercer LLC, ‘Human Capital Strategies for Canada’s Energy Sector’, 2010, p. 4, available at:

32 See, e.g., Calkin C., ‘Offshore Oil Rig Jobs Can Be Tough, but Very Rewarding’ (no date), available at: .

33 The trade organization that certifies courses for rig workers is the International Well Control Forum.

34 See, e.g., Hirsch R.F., Technology and Transformation in the American Electric Utility Industry (Cambridge University Press, 1999), pp. 1932 ; Bushnell J.B. & Wolfram C., ‘The Guy at the Controls: Labor Quality and Power Plant Efficiency’, in R.B. Freeman & K.L. Shaw (eds), International Differences in the Business Practices and Productivity of Firms (University of Chicago Press, 2009), pp. 79102 .

35 Dawson C., ‘Canadian Oil-Sands Producers Struggle’, The Wall Street Journal, 19 Aug. 2015, p. A1 , available at:

36 Hsu S.-L., ‘The Rise and the Rise of the One Percent: Considering Legal Causes of Inequality’ (2015) 64 Emory Law Journal Online, pp. 20432072 , at 2047–8, available at:

37 International Energy Agency (IEA), World Energy Outlook 2014: Executive Summary (OECD/IEA, 2014), p. 4, available at:; International Monetary Fund (IMF), Energy Subsidy Reform: Lessons and Implications (IMF, 2014), p. 5.

38 In the US, e.g., the standards are ‘prudently incurred’ (FPC v. Hope Natural Gas Co., 320 U.S. 591, 600 (1944)), and ‘used and useful’ (Duquesne Light Co. v. Barasch, 488 U.S. 299, 309 (1989) (citing Missouri ex rel. Southwestern Bell Telephone Co. v. Public Service Communication, 262 U.S. 276, 291 (1923) (Brandeis, J. dissenting)).

39 The propensity for regulated utilities to try to ‘stuff’ physical capital into their rate base (substituting it for labour) is commonly referred to as the ‘Averch-Johnson effect’: see Averch H. & Johnson L.L., ‘Behavior of the Firm under Regulatory Constraint’ (1962) 52(6) American Economic Review, pp. 10531069 . Evidence for the Averch-Johnson effect is not unequivocal but is generally believed to be supportive: see Courville L., ‘Regulation and Efficiency in the Electric Utility Industry’ (1974) 5(1) Bell Journal of Economics and Management Science, pp. 5374 ; Petersen H.C., ‘An Empirical Test of Regulatory Effects’ (1975) 6(1) Bell Journal of Economics and Management Science, pp. 111126 ; Spann R.M., ‘Rate of Return Regulation and Efficiency in Production: An Empirical Test of the Averch-Johnson Thesis’ (1974) 5(1) Bell Journal of Economics and Management Science, pp. 3852 ; Bushnell & Wolfram, n. 34 above, p. 81 (‘Typically, only the most egregiously wasteful expenditures would be overturned by regulators’).

40 Hsu, n. 6 above, pp. 743–68.

41 IMF, n. 37 above, p. 5, n. 2.

42 Ibid., p. 5.

43 Ibid.

44 Ibid.

45 The G20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Korea, Turkey, the United Kingdom (UK), the US, and the European Union (EU): see, e.g., University of Toronto, ‘G20 Information Centre: G20 Members’, available at:

46 ‘Leaders’ Statement: The Pittsburgh Summit, September 24–25, 2009’, para. 29, available at:

47 Kirsch A. & Roberts T., ‘Ghosts of Resolutions Past: The G20 Agreement on Phasing Out Inefficient Fossil Fuel Subsidies’, Brookings Planet Policy, 14 Nov. 2014, available at: .

48 For a review, see Gilbert R.J., Kahn E.P. & Newbery D., ‘Introduction: International Comparisons of Electricity Regulation’, in R.J. Gilbert & E.P. Kahn (eds), International Comparisons of Electricity Regulation (Cambridge University Press, 1996), pp. 124 , at 2–3.

49 Sine W.D. & David R.J., ‘Environmental Jolts, Institutional Change, and the Creation of Entrepreneurial Opportunity in the US Electric Power Industry’ (2003) 32(2) Research Policy, pp. 185207 , at 193.

50 Hirsh R.F., Technology and Transformation in the American Electric Utility Industry (Cambridge University Press, 1999), p. 46 .

51 Awerbuch S. et al., ‘Capital Budgeting, Technological Innovation and the Emerging Competitive Environment of the Electric Power Industry’ (1996) 24(2) Energy Policy, pp. 195202 , at 198; Sine & David, n. 49 above, pp. 203–4.

52 Markard J. & Truffer B., ‘Innovation Processes in Large Technical Systems: Market Liberalization as a Driver for Radical Change?’ (2006) 35(5) Research Policy, pp. 609625 , at 609; Sine & David, n. 49 above, p. 194, n. 13.

53 Gilbert, Kahn & Newbery, n. 48 above.

54 Public Utility Regulatory Policies Act of 1978, Publ. L. 95-917, 92 Stat. 3117 (9 Nov. 1978).

55 Energy Policy Act of 1992, Publ. L. 109-58, 119 Stat. 594 (8 Aug. 2005); and Federal Energy Regulatory Commission Order 888, FERC Stats. & Regs. 31,036 (1997).

56 ‘Unbundling’ means to break up the traditional vertically integrated electric utilities typical of the regulated monopoly regime: see, e.g., Joskow P.L., ‘California’s Electricity Crisis’, National Bureau of Economic Research Working Paper 8442, Aug. 2001, p. 5, available at: .

57 Jamasb T. & Pollitt M., ‘Electricity Market Reform in the European Union: Review of Progress Toward Liberalization and Integration’ (2005) 26(Special Issue) The Energy Journal, pp. 1141 , at 13.

58 Ibid., pp. 36–7.

59 Cardwell D., ‘SolarCity to Make High-Efficiency Panel’, The New York Times, 2 Oct. 2015, p. B2, available at: .

60 Irfan U., ‘On the Cusp of a Boom, Soft Costs Pose a Challenge for Solar’, ClimateWire, 18 Dec. 2015, available at: .

61 National Renewable Energy Laboratory, ‘Solar Maps’, 2015, available at:

62 Florida Statutes § 366.82(1)(a).

63 PW Ventures v. Nichols, 533 So. 2d 281 (1988).

64 Baumol W.J. & Oates W.E., The Theory of Environmental Policy, 2nd edn (Cambridge University Press, 1988), p. 29 .

65 26 U.S.C. §45.

66 Energy Policy Act of 1992, Publ. L. 102-486 (24 Oct. 1992).

67 American Jobs Creation Act of 2004, Publ. L. 108-357 (22 Oct. 2004).

68 Emergency Economic Stabilization Act of 2008, Publ. L. 110-343, 122 Stat. 3765 (3 Oct. 2008).

69 Mann R., ‘Another Day Older and Deeper in Debt: How Tax Incentives Encourage Burning Coal and the Consequences for Global Warming’ (2008) 20 Pacific McGeorge Global Business & Development Law Journal, pp. 111142 .

70 Acemoglu D. et al., ‘The Environment and Directed Technical Change’, National Bureau of Economic Research Working Paper No. 15451, Oct. 2009, p. 3, available at: .

71 Ibid.; Aghion P. et al., ‘Carbon Taxes, Path Dependency and Directed Technical Change: Evidence from the Auto Industry’, National Bureau of Economic Research Working Paper No. 18596, Dec. 2012, p. 34, available at: .

72 Clarke J.S. et al., ‘Faculty Receptivity/Resistance to Change, Personal and Organizational Efficacy, Decision Deprivation and Effectiveness in Research I Universities’, paper presented at the 21st Annual Meeting of the Association for the Study of Higher Education, Memphis, TN (US), 31 Oct–3 Nov. 1996, available at: ; Etzkowitz H. et al, ‘The Future of the University and the University of the Future: Evolution of Ivory Tower to Entrepreneurial Paradigm’ (2000) 29(2) Research Policy, pp. 313330 .

73 Adler J.H., ‘Eyes on a Climate Prize: Rewarding Energy Innovation to Achieve Climate Stabilization’ (2011) 35(1) Harvard Environmental Law Review, pp. 145 .

74 Ibid., p. 3.

75 Ibid., pp. 1–3.

76 US Department of Energy, ‘’, available at:

77 Reilly S., ‘Columbus Wins Obama Admin’s Smart City Challenge’, E&E News PM, 23 June 2016, available at: .

78 Virgin Earth Challenge, ‘Terms and Conditions’, available at: As of the time of writing this article, none had yet met Sir Richard Branson’s challenge.

79 XPrize, ‘NRG Cosia Carbon Xprize: Overview’, available at:

80 Under some circumstances, patentees may be compelled to license patented technology: Adelman M.J., ‘Property Right Theory and Patent-Antitrust: The Role of Compulsory Licensing’ (1977) 52(5) New York University Law Review, pp. 9771013 .

81 From 1920 to 1999, the average efficiency of a kilowatt-hour delivered to the American electric grid increased from 20% to only 33%: Kaarsberg T., Gorte J.F. & Munson R., The Clean Air-Innovative Technology Link: Enhancing Efficiency in the Electricity Industry (Northeast-Midwest Institute, 1999), p. 29, Figure 5.

82 Atlantic Wind Connection, available at:

83 Tesla Motors, ‘Powerwall Home Battery’, available at:

84 Virgin Earth Challenge, ‘The Finalists’, available at:

85 N. 1 above.

86 New York, NY (US) 9 May 1992, in force 21 Mar. 1994, available at:, Art. 4(5).

87 E.g., governments worldwide have generously supported seemingly practical carbon capture and storage technologies (CCS), which can be attached to a coal-fired power plant to reduce CO2 emissions: see Bankes N. et al., ‘International Trade and Investment Law and Carbon Management Technologies’ (2013) 53(2) Natural Resources Journal, pp. 285324 . However, cost-effective CCS deployment remains decades away and encounters persistent doubts from prospective industry beneficiaries: IEA & United Nations Industrial Development Organization (UNIDO), ‘Technology Roadmap: Carbon Capture and Storage in Industrial Applications’, 2011, pp. 14–8, available at:

88 Popp D., ‘Innovation and Climate Policy’, National Bureau of Economic Research Working Paper No. 15673, p. 19, available at: .

89 Gertner J., The Idea Factory: Bell Labs and the Great Age of American Innovation (Penguin Books, 2012), p. 341 .

90 Ibid., pp. 170–2.

91 Ibid., pp. 202–4.

92 Ibid., pp. 275–9.

93 Ibid., pp. 279–83.

94 Ibid., p. 261.

95 Ibid., p. 262.

96 Ibid., pp. 163–70.

97 Francis R., ‘Nobel Prize Latest in Long Line for Bell Labs’, Network World, 7 Oct. 2009, available at: .

98 Gertner, n. 89 above, p. 151.

99 Ibid., p. 77.

100 Ibid., p. 79.

101 Ibid., p. 153.

102 See, e.g., Goldin C. & Katz L.F., The Race Between Education and Technology (Harvard University Press, 2008).

103 Gertner, n. 89 above, pp. 260, 351.

104 Kabo F. et al., ‘Shared Paths to the Lab: A Sociospatial Network Analysis of Collaboration’ (2015) 47(1) Environment and Behavior, pp. 5782 .

105 See, e.g., Rhoten D., ‘A Multi-Method Analysis of the Social and Technical Conditions for Interdisciplinary Collaboration’, National Science Foundation, 29 Sept. 2003, available at: .

106 Acemoglu & Angrist, n. 17 above.

107 See, e.g., Goldin & Katz, n. 102 above.

108 Gertner, n. 89 above, pp. 253–6.

109 Ibid., p. 81.

110 ‘Superconductor Electricity Pipelines to be Adopted for America’s First Renewable Energy Market Hub’, BusinessWire, 13 Oct. 2009, available at:

111 Fujimoto H. et al., ‘Preliminary Study of a Superconducting Bulk Magnet for the Maglev Train’ (1999) 9(2) IEEE Transactions on Applied Superconductivity, pp. 301302 .

112 Walsh K. McNulty, ‘Superconductors and Energy Storage’ (2011) 9(3) Innovation, available at: .

113 See, e.g., Kintisch E., ‘Can Sucking CO2 out of the Atmosphere Really Work?’, The MIT Technology Review, 7 Oct. 2014, available at: .

114 Gertner, n. 89 above, p. 355.

115 US Department of Energy, ‘Department of Energy to Invest $366M in Energy Innovation Hubs’, 22 Dec. 2009, available at:

116 Stone, n. 2 above.

117 N. 1 above, Art. 10(2).

118 Cancun Agreement, UN Doc. No. FCCC/CP/2010/7/Add.1, 15 Mar. 2011, paras 117–28, available at:

119 Boyd A., ‘Informing International UNFCCC Technology Mechanisms from the Ground Up’ (2012) 51 Energy Policy, pp. 301311 .

120 de Coninck H. & Bhasin S., ‘Meaningful Technology Development and Transfer: A Necessary Condition for a Viable Climate Regime’, in S. Barrett, C. Carraro & J. de Melo (eds), Toward a Workable and Effective Climate Regime (Brookings, 2015), pp. 451464 , at 457–8.

121 Ibid., p. 458.

122 Ibid., p. 457.

123 CGIAR, ‘Who We Are’, available at:

124 CGIAR, ‘Financial Highlights 2014’, available at:

125 CGIAR, ‘Fund Council Membership 2013–2015’, available at:

126 CGIAR, ‘Our Research Centers’, available at:

127 De Coninck & Bhasin, n. 120 above, p. 457.

128 Cancun Agreement, n. 118 above, Art. 123.

129 Gertner, n. 89 above, p. 27.

For their help and comments, the author would like to thank Jaqueline Peel, workshop attendees at the University of Oregon School of Law, Eugene, OR (US) and at the joint workshop of the International Environmental Law Section of the American Society of International Law and the University of Minnesota Energy Transition Lab, Minneapolis, MN (US), and three anonymous reviewers for TEL. The author would especially like to thank Mary McCormick and the always exceptional library staff at the Florida State University College of Law.

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Transnational Environmental Law
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