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Greenhouse Gas Mitigation and Price-driven Growth in a Baumol-Solow-Swan Economy

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  • Burda, Michael
  • Zessner-Spitzenberg, Leopold

Abstract

The existence of an environmental limit changes fundamentally the nature of economic growth. When atmospheric greenhouse gases reach a predetermined absolute threshold, further growth requires a permanently expanding, resource-intensive mitigation effort. We incorporate anthropogenic climate change and its mitigation into the Solow-Swan growth model and show that if the rate of technical progress in mitigation fails to exceed a critical value, the economy behaves as described by Baumol (1967). Economic growth in this regime is then driven by technological progress in mitigation and the dynamics of its relative price. Even in the extreme case that long-run growth of produced output converges to zero, the growth rate of GDP measured in terms of produced goods does not.

Suggested Citation

  • Burda, Michael & Zessner-Spitzenberg, Leopold, 2022. "Greenhouse Gas Mitigation and Price-driven Growth in a Baumol-Solow-Swan Economy," CEPR Discussion Papers 17368, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17368
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    1. Llavador, Humberto & Roemer, John E. & Silvestre, Joaquim, 2011. "“A dynamic analysis of human welfare in a warming planet”," Journal of Public Economics, Elsevier, vol. 95(11), pages 1607-1620.
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    3. Stokey, Nancy L, 1998. "Are There Limits to Growth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 1-31, February.
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    More about this item

    Keywords

    Solow-swan growth model; Baumol model; Anthropogenic climate change; Mitigation; Price-driven economic growth;
    All these keywords.

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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