Environmental economic modeling of sustainable growth and consumption in a zero-emission society

Abstract

Successfully managing both economic growth and environmental preservation is an important issue facing international society. In this paper, we analyze whether it is possible to simultaneously achieve continued economic growth and a zero net emission of pollution (in the sense of a zero residual amount of pollution created minus pollution abated) within the context of a growth model with endogenous fluctuations. We assume that societies implement the kindergarten rule of pollution abatement such that pollution is cleaned up as it is created, and refer to the proportion of pollution abatement expenditure in gross domestic product (GDP) for achieving zero net emission of pollution flow as the kindergarten rule level of abatement. The model leads to the appearance of a no-innovation growth phase (called the Solow regime) and innovation-led growth phase (called the Romer regime) in the presence of pollution abatement. When period-2 cycles alternating between Solow and Romer regimes emerge, the model implies that the zero net emission of pollution flow is compatible with continued growth of consumption. As preconditions in this regard, however, the economy requires GDP above a certain level together with variability of the kindergarten rule level of abatement. Furthermore, in the Solow regime, the economy experiences higher growth in consumption and a faster decrease in the kindergarten rule level of abatement, while the economy experiences lower growth in consumption and a slower decrease in the kindergarten rule level of abatement in the Romer regime. The present study is also related to goal 8 (target 8.4) of the United Nations Sustainable Development Goals, and provides a theoretical rationale that the sustained growth of GDP and consumption is an achievable goal in a zero-emission society.