Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 11-2020: On Green Growth with Sustainable Capital

Parantap Basu and Tooraj Jamasb ()
Additional contact information
Parantap Basu: Durham University Business School, Durham University, Postal: Mill Hill Lane, DH1 3LB, Durham, UK
Tooraj Jamasb: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark

Abstract: We develop an endogenous growth model to address a long standing question whether sustainable green growth is feasible by re-allocating resource use between green (natural) and man-made (carbon intensive) capital. Although the model is general we relate it to the UK’s green growth policy objective. In our model, final output is produced with two reproducible inputs, green and man-made capital. The growth of man-made capital causes depreciation of green capital via carbon emissions and related externalities which the private sector does not internalize. A benevolent government uses carbon taxes to encourage firms to substitute man-made capital with green capital in so far the production technology allows. Doing so, the damage to natural capital by emissions can be partly reversed through a lower socially optimal long run growth. The trade-off between environmental quality and long-run growth can be overcome by a pollution abatement technology intervention. However, if the source of pollution is consumption, the optimal carbon tax is zero and there is no trade-off between environment policy and growth. A corrective consumption tax is then needed to finance a public investment programme for replenishing the green capital destroyed by consumption based emissions.

Keywords: Green growth; Sustainability; Carbon tax; Clean growth; Resource substitution

JEL-codes: E10; O30; O40; Q20

41 pages, May 1, 2020

Full text files

9811 PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to Lene Hald ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2022-03-04 14:16:00.