Pollution and endogenous growth

Economic Growth;Pollution;economische groei

Computable General equilibrium Models in Environmental and Resource Economics

The focus of this survey chapter is on the importance of general equilibrium interactions in assessing efficiency costs of environmental policies. Those interactions are relevant to the impacts of a wide range of government policies to control air pollution, deforestation or water quality. These policies raise the costs of output and the distortions in factor markets from preexisting market imperfections and imply higher social costs than would be indicated by partial equilibrium models. Although computable general equilibrium models (CGE models) cannot be used to forecast business cycles, they can indicate likely magnitudes of policy-induced changes from future baselines, and they are indispensable for ranking alternative policy measures. Since these numerical models are based on assumptions concerning the economic development (elasticities of substitution, technical change, or the magnitude of exogenous variables) it would be misleading to base policy decisions on a specific numerical result. Rather, CGE models should be used to understand the reasons for particular results, to better frame the policy decisions, and to support the appropriate policy judgements. Using general equilibrium theory, economists can very often get a good idea of the welfare effect and of the qualitative results from a change in a given policy instrument

A Climate-Change Policy Induced Shift from Innovations in Energy Production to Energy Savings

We develop an endogenous growth model with capital, labor and energy as production factors and three productivity variables that measure accumulated innovations for energy production, energy savings, and neutral growth. All markets are complete and perfect, except for research, for which we assume that the marginal social value exceeds marginal costs by factor four. The model constants are calibrated so that the model reproduces the relevant trends over the 1970-2000 period. The model contains a simple climate module, and is used to assess the impact of Induced Technological Change (ITC) for a policy that aims at a maximum level of atmospheric CO2 concentration (450 ppmv). ITC is shown to reduce the required carbon tax by about a factor 2, and to reduce costs of such a policy by about factor 10. Numerical simulations show that knowledge accumulation shifts from energy production to energy saving technology.Induced technological change, Environmental taxes, Partial equilibrium

Technology Transfers and the Clean Development Mechanism in a North-South General Equilibrium Model

This paper analyzes the potential welfare gains of introducing a technology transfer from Annex I to non-Annex I in order to mitigate greenhouse gas emissions. Our analysis is based on a numerical general equilibrium model for a world economy comprising two regions, North (Annex I) and South (non-Annex I). As our model allows for labor mobility between the formal and informal sectors in the South, we are also able to capture additional aspects of how the transfer influences the Southern economy. In a cooperative equilibrium, a technology transfer from the North to the South is clearly desirable from the perspective of a ‘global social planner’, since the welfare gain for the South outweighs the welfare loss for the North. However, if the regions do not cooperate, then the incentives to introduce the technology transfer appear to be relatively weak from the perspective of the North; at least if we allow for Southern abatement in the pre-transfer Nash equilibrium. Finally, by adding the emission reductions associated with the Kyoto agreement to an otherwise uncontrolled market economy, the technology transfer leads to higher welfare in both regions.Climate Policy, Technology Transfer, Kyoto Protocol, General Equilibrium, Clean Development Mechanism