Reduction of CO2 emissions, climate damage and the persistence of business cycles: A model of (de)coupling

Ettore Gallo

Structural Change and Economic Dynamics, 2025, vol. 74, issue C, 725-737

Abstract: The paper develops a theoretical model to examine the effects of transitioning to green investment on business cycle dynamics and CO2 emissions reduction. Building on Goodwin’s (‘The Nonlinear Accelerator and the Persistence of Business Cycles’, Econometrica, pp. 1–17, 1951) endogenous business cycle theory, the paper models the shift from brown to green investment as a logistic diffusion process. This framework captures the short-run procyclicality of emissions while allowing for both coupling and decoupling scenarios between output and emissions over the business cycles. The model demonstrates that the investment channel’s impact on emissions varies depending on the transition’s timing, magnitude, and sensitivity to green–brown investment dynamics. Furthermore, the paper shows that the integration of climate damage can result in milder expansion phases and sharper downturns, potentially offsetting the positive effects of the green transition. The analysis contributes to the understanding of short-run economy-ecology feedback mechanisms, with the model’s flexibility capturing varying degrees of decoupling between emissions and output, thus accommodating scenarios in both advanced economies and emerging markets.

Keywords: Green investment; Ecology-economy feedback; Climate change; Climate damage; Business cycle (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0954349X25000748
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Reduction of CO2 Emissions, Climate Damage and the Persistence of Business Cycles: A Model of (De)coupling (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:74:y:2025:i:c:p:725-737

DOI: 10.1016/j.strueco.2025.05.009

Access Statistics for this article

Structural Change and Economic Dynamics is currently edited by F. Duchin, H. Hagemann, M. Landesmann, R. Scazzieri, A. Steenge and B. Verspagen

More articles in Structural Change and Economic Dynamics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().