The Green Solow Model 2

Output per Effective Worker

y = Y/BL or y·BL=Y

Growth Rate of Emissions Formula

g_E = g_B + n - g_A

g_E

growth rate of emissions

g_B + n

Scale effect (g_Y)

g_A

technique effect

Sustainable Growth

The balanced growth path generating both rising income per capita and an improving environment

g_E > 0

If s(1-θ)k^⍺-1 > (𝛿 + n +g_B)

g_E < 0

If s(1-θ)k^⍺-1 < (𝛿 + n +g_B)

EKC (1)

W/ rapid initial growth, the impact of abatement technology is overwhelmed. This causes an increase in emissions

EKC (2)

As countries develop & approach their balanced growth path, slower growth allows technological progress in abatement to take over. As a consequence, we see falling emissions levels as income per capita rises

Comparative statics

If environmental regulations become permanently more stringent, a larger fraction of output must b devoted to abatement

The increase in θ will lower (1 - θ), shifting the savings locus to the left.

This cause the peak in emissions (turning pt) to occur sooner.

Growth Sustainable

• g_A > g_B + n

• g_E < 0

EKC Shifts Right

Shift EKC to the Right (Emissions Peak Later)

• Higher saving rate (↑ s)
  → More capital accumulation and output growth
  → Emissions increase for a longer period
  🔄 Turning point comes later

EKC Shifts Left

Stricter environmental regulations
→ More output is devoted to pollution abatement (↑ θ)
→ Less saving/investment → slower capital accumulation
→ Emissions begin to decline at a lower income level
🔄 Turning point comes earlier