Economics of Environmental Emission: A Theoretical Appraisal on Solovian Line and an Empirical Overhaul

Abstract

The increasing threat of global warming and climate change has been a major worldwide concern for more than two decades. As the achievement of sustainable economic growth has gradually become a major global concern both policy makers and researchers have given considerable attention over the years on the link among energy consumption, emissions and economic growth. In this study, following a solovian growth structure, the authors assume that the aggregate output depends on the stock of physical as well as human capital and energy or power. Depending on the sources, the energy can be categorised into cleaner input generated from renewable sources and a dirty input extracted from non-renewable resources having by-products like pollution. This study finds that less-developed countries (LDCs) failing to afford sufficient access to clean energy which in turn has deleterious impact on the human capital which cascades into low level of production, low saving and low per capita output forming a vicious loop. On the other side, the developed nations are better poised with access to clean energy and this is what is reflected in having larger reserve of human capital yielding higher production, higher income, higher saving and higher per capita capital stock in a circular process. This hence posits a clinching picturing divergence in per capital output and income between developed and less-developed nation mediated through degree of access to clean energy and thereof, the capacity to control emission. The convergence situation between the developed and the less-developed nations shows that each ends up with the relative energy mix below the threshold and it is not desirous for the world as a whole. In case of per capita emission, the divergence situation with the global level of emission is bit ambiguous.