Explaining environmental Kuznets curves: How pollution induces policy and new technologies

Production often causes pollution as a by-product. Once pollution problems become too severe, regulation is introduced by political authorities which forces the economy to make a transition to cleaner production processes. We model this transition as a change in general purpose technology (GPT) and investigate how it interferes with economic growth driven by qualityimprovements. The model gives an explanation for the inverted U-shaped relationship found in empirical research for many pollutants, often referred to as the Environmental Kuznets Curve (EKC). We provide an analytical foundation for the claim that the rise and decline of pollution can be explained by policyinduced technology shifts. --Environmental Kuznets curve,general purpose technology,growth

The Rising Skill Premium, Technological Change and Appropriability

In the US the skill premium and the nonproduction/production wage differential increased strongly from the late 1970s onwards. Skillbiased technological change, trade with unskilledabundant countries and changes in the (domestic) supply of skilled workers have been proposed as explanatory factors. By the method of eliminating the impossible, skillbiased technological change is argued to be the dominant explanation. This paper shows that the dismissal of the increased supply of skill which is argued to be countervailing rising skill premiums is premature. In a simple model, well embedded in the literature on R&D, knowledge accumulation and (semi)endogenous growth, it is shown that the demand curve for skilled labour might well be upward sloping. Our key assumption is that skilled labour is employed in nonproduction activities that both generate and use knowledge inputs. It is shown that the tension between nonrivalness and appropriability of R&D output is crucial for the sign of the slope of the skilldemand curve. A necessary condition for an upward sloping demand curve is the ability of firms to appropriate the intertemporal returns from nonproduction activities.

Sustainability and substitution of exhaustible natural resources. How resource prices affect long-term R&D-investments

Traditional resource economics has been criticised for assuming too high elasticities of substitution, not observing material balance principles and relying too much on planner solutions to obtain long-term growth. By analysing a multi-sector R&Dbased endogenous growth model with exhaustible natural resources, labour, and knowledge capital as inputs, the present paper addresses this critique. We study transitional dynamics and the long-term growth path and identify conditions under which firms keep spending on research and development so that growth is sustained. We demonstrate that long-run growth can be sustained under free market conditions even when elasticities of substitution between man-made inputs and resources are low.Growth, non-renewable resources, substitution, investment incentives, endogenous technological change, sustainability

Sustainability and Substitution of Exhaustible Natural Resources. How resource prices affect long-term R&D investments

Traditional resource economics has been criticised for assuming too high elasticities of substitution, not observing material balance principles and relying too much on planner solutions to obtain long-term growth. By analysing a multi-sector R&D-based endogenous growth model with exhaustible natural resources, labour, knowledge, and physical capital as inputs, the present paper addresses this critique. We study transitional dynamics and the long-term growth path and identify conditions under which firms keep spending on research and development. We demonstrate that long-run growth can be sustained under free market conditions even when elasticities of substitution between capital and resources are low and the supply of physical capital is limited, which seems to be crucial for today’s sustainability debate.Growth, Non-renewable resources, Substitution, Investment incentives, Endogenous technological change, Sustainability

Pollution and the Efficiency of Urban Growth

We analyze the efficiency of urbanization patterns in a dynamic model of endogenous urban growth with two sectors of production. Production exhibits increasing returns to scale on aggregate. Urban environmental pollution, as a force that discourages agglomeration, is caused by domestic production. We show that cities are too large and too few in number in equilibrium, compared to the efficient urbanization path, if economic growth implies increasing aggregate emissions. If, on the other hand, production becomes cleaner over time (`quality growth') the urbanization path approximates the efficient outcome after finite time.Cities, Urbanisation, Pollution, Growth, Migration, Sustainable Development

Green Taxes and Administrative Costs: The Case of Carbon Taxation

This paper explores the trade-off between incentive effects and administrative costs associated with the implementation of various environmental tax instruments, with special reference to carbon taxes. In a simple model, we show under what conditions it is optimal to use input rather than emission taxes to internalize environmental externalities. Mixed tax regimes are also studied. If linkage of emissions to inputs is close, if abatement possibilities are costly, and if administrative costs of emission taxes are high, emission taxes should not be introduced. It is shown that these conditions directly apply to current tax policies toward CO2 emissions in several European countries that harness pre-existing energy taxes. First, there is a one-to-one correspondence between carbon content of energy and CO2 emissions. Second, only few possibilities exist to abate CO2 emissions separately. Third, energy excises allow to save on administrative costs. Broadening the carbon tax base by removing certain widely-used exemptions for energy production (and possibly adding emission taxes or abatement subsidies for selected industries) is likely to increase incentives for carbon reduction without significant additional administrative costs.

Uncertain Climate Policy and the Green Paradox

Unintended consequences of announcing a climate policy well in advance of its implementation have been studied in a variety of situations. We show that a phenomenon akin to the so-called “Green- Paradox” holds also when the policy implementation date is uncertain. Governments are compelled, by international and domestic pressure, to demonstrate an intention to reduce greenhouse gas emissions. Taking actual steps, such as imposing a carbon tax on fossil energy, is a different matter altogether and depends on a host of political considerations. As a result, economic agents often consider the policy implementation date to be uncertain. We show that in the interim period between the policy announcement and its actual implementation the emission of green-house gases increases vis-`a-vis business-as-usual.Climate policy, carbon tax, uncertainty, green paradox, Environmental Economics and Policy, Resource /Energy Economics and Policy,

Economic growth and the diffusion of clean technologies : explaining environmental Kuznets

Production often causes pollution as a by-product. Once environmental degra- dation becomes too severe, regulation is introduced by which society forces the economy to make a transition to cleaner production processes. We model this transition as a change in "general purpose technology" and investigate how it interferes with economic growth driven by quality-improvements. The model gives an explanation for the inverted U-shaped pollution-income relation found in empirical research for many pollutants (Environmental Kuznets Curve). We provide an analytical foundation for the claim that the rise and decline of pol- lution can be explained by policy-induced technology shifts and intrasectoral changes.Environmental Kuznets curve, general purpose technology, growth, intrasectoral shifts

Sustainable Resource Use and Economic Dynamics

We argue that the sustainable use of natural resources has to be placed in a dynamic perspective, both in theoretical modelling and in applied research. This can be achieved by applying endogenous growth theory and other recent advances in dynamic theory. In this paper we discuss five contributions that combine the topics of natural resource use and economic dynamics. In particular, we show the common features of these contributions, thereby providing an overview of a very active and promising research are