Examining the Interaction between Consumption and Greenhouse Gas Emissions Using a Calibrated Dynamic Optimization Model

Abstract

Nowadays, excessive exploitation of resources, on the one hand, and pollution, wastes and waste production and consumption, on the other hand, have posed major obstacles to the development of countries. Among the risks that have recently attracted much attention, one can refer to increasing greenhouse gases, ozone destruction, melting of polar ice, loss of species, and erosion of agricultural land. The key cause of the depletion of natural resources, emissions, and environmental degradation is overconsumption, which must be managed for the sake of sustainable development. In this paper, we investigate the effect of consumption on sustainable development based on the pattern proposed by Lambert (1985) and Stokey (1998). To achieve this purpose, an optimal control model has been used that focuses on the interaction between the consumer’s behavior and environmental degradation. In order to solve the model in a numerical manner, a risk-averse utility function is taken into account, and the model is optimized in accordance to the principle of maximum Pentryagyn to find the optimal values of consumption and emissions studied in stable conditions. The model parameters are set using the calibration procedure, and, finally, the results of changing the parameters are evaluated by scenarios. After the model is solved, the optimal path of the variables and the way to achieve the optimal points in a steady state are determined. The results are analyzed in a phase diagram. Showing high consumption and emission values vis a vis the optimal situation in Iran, the results suggest that Iran is getting far from the optimal sustainable state. This is because of the lack of sustainability of consumption patterns in Iran.