Economic Growth and the Convergence in Carbon Emissions Across Countries

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Economic Growth and the Convergence in Carbon
Emissions Across Countries

• M. Scott Taylor
• Department of Economics, Calgary
• Institute for Advanced Policy Research, Calgary
• National Bureau of Economic Research, Cambridge
  MA

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The Environment and Growth

• Is continuing economic growth compatible with an
  improving environment?
• What determines cross country differences in
  environmental quality?

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Problem

• Continual growth with environmental improvement
  requires falling emissions per unit of output.
• But lowering emissions per unit of output comes
  at increasing cost, because of Diminishing
  Returns.

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Implication

• Pollution abatement costs should rise
  precipitously
• This lowers the return to investment
• This should choke off growth

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Potential Solution

• Technological progress holds costs down
• The return to capital accumulation is not choked
  off
• Growth with environmental improvement is possible

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Is it possible?

• Maybe

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The Solow Model

• One Aggregate Good produced via capital equipment
  and labor
• Aggregate output can be consumed or invested
• Capital accumulates over time via investment
• Technological progress makes inputs to goods
  production more efficient over time.

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Rewrite in Different Units
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The Solow Model
f(k)
y
sf(k)
i
Output Savings Investment
(ngd)k
k(0)
k
Capital per effective worker
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BGP Predictions

• Technological progress determines an economys
  long run growth.
• k is constant along the BGP, but this means
• Capital per worker, K/L grows at rate g
• Income per capita Y/L grows at rate g
• Aggregate output grows at rate gn

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Transition Path Predictions
Rates of Change
(ngd)
sf(k)/k
k(0)
k
Capital per effective worker
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Unconditional ConvergencePoor Countries Should
grow faster than Rich ones
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Transition Path Predictions
Rates of Change
(ngd)
(ngd)
sf(k)/k
sf(k)/k
k
k
Capital per effective worker
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Conditional ConvergenceCorrect for SS differences
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The Green Solow Model

• Technological progress makes inputs used in both
  goods production and abatement more efficient
  over time.
• Environmental standards rise slowly over time

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Emissions can be abated but at some cost
Emissions produced are proportionate to output
flow
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Manipulate to Obtain
Emissions Growth along BGP Defined as GEgn-gA
Transitional Growth Component
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Two Time Frames

• Along the BGP we again have dk/dt 0
• Emissions fall or rise over time
• If GE gt 0 we say growth is unsustainable
• If GElt 0 we say growth is sustainable

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Sustainable Growth GE lt0
Rates of Change
dE/dt/E
dk/dt/k
a(ngd)-GE
a(ngd)
asf(k)/k
kT
k
Capital per effective worker
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Empirical Implications
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Declining Emissions to GDP ratios
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Pollution Abatement costs/GDP are virtually
constant
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Sulfur Dioxide Emissions, 1940-1998
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Carbon Monoxide Emissions, 1940-1998
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Nitrogen Oxide Emissions, 1940-1998
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Volatile Organic Compounds 1940-1998
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Particulate Matter PM10, 1940-1998
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What if Growth is Unsustainable?
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UnSustainable Growth GEgt0
Rates of Change
dE/dt/E
a(ngd)
a(ngd)-GE
asf(k)/k
k
kT
Capital per effective worker
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Unconditional Convergence
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Conditional Convergence
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Estimated Rate of Convergence

• Rate of convergence is 2 per year.
• This implies
• 35 years to halve the gap between current
  position and steady state
• Observation of positive emission growth for a
  very long period is consistent with sustainable
  growth.
• Could Carbon be like sulfur, nitrogen oxides,
  particulates, etc?

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Conclusions

• Green Solow model offers a consistent explanation
  for observed data on emission levels, emission
  intensities, and environmental control costs.
• Predicts conditional convergence in emissions per
  person. Estimated rate of convergence is very
  slow. 2 per year.

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• Predicts eventually rising environmental quality
  if technological progress is sufficiently rapid
• Left to do Other pollutants and European
  countries rest of the world and Carbon
  emissions other estimation strategies.