The Balance-of-Emissions Constraint on Growth: Pathways to Net-Zero Greenhouse Gas Emissions in a Simple Post-Keynesian Model

Despite the scientific consensus on the need to achieve net-zero greenhouse gas (GHG) emissions by 2050 as a key environmental goal, there is little consensus among economists on the best pathway to achieve this crucial goal. Particularly contentious is what achieving net zero in time implies for the growth rate of the global economy. In the search for a post-Keynesian answer, we first review the related literature showing the divide between degrowth/post-growth authors, who argue that net zero implies a need for negative or zero growth, and Keynesian green growth advocates, who argue that positive growth rates are required. Motivated by these controversies, we develop a simple Sraffian supermultiplier model of the global economy, where GHG emissions depend on the stock of capital in production and absorption depends on the stock of natural capital, from which we can formally demonstrate that the goal of net-zero GHG emissions implies a constraint on the growth rate of the global economy. Crucially, this “balance-of-emissions constraint” on growth depends on a number of key parameters that are influenced by public policy, such as the share of public spending on natural capital, the share of investment in low-emission production capital, and the parameters that enter the supermultiplier, which determine the size of the rebound effect. From this, we model different pathways to net zero and argue for an interventionist policy mix, which we show brings about net zero emissions much more rapidly than any laissez-faire alternative scenario, even one with utmost optimism about future green technology.