The Role of Technology in Energy Consumption, Economic Growth, and Environmental Degradation

Abstract

We develop a dynamic, theoretical model that explains how the diffusion of clean technologies has lead to a decrease in the EPA’s criteria pollutants over the past four decades while the U.S. economy has continued to expand over this time. These clean technologies are used in both energy consumption and production to reduce pollution emissions. Technologies enter the model through a theoretical patenting process whereby R&D firms obtain monopoly rights to sell their clean technology innovations to a sector of final output. A benevolent government is assumed to regulate pollution emissions by taxing the sector of final output. Thus, there is an interesting trade-off between private versus public incentives for the final output sector to reduce pollution emissions. Based upon assumptions similar to past works, our simulations show trajectories of economic growth, pollution emission growth, and emission intensities that are remarkably similar to empirical observations in the U.S. Our theoretical model helps explain the driving force behind the historic, inverted-U shaped relationship we observe with the U.S.’s criteria pollutants and the relation to energy consumption.