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On Green Growth with Sustainable Capital

Parantap Basu and Tooraj Jamasb

No 2019_06, Working Papers from Durham University Business School

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. In our model, final output is produced with two reproducible inputs, green and man-made capital. The growth of the man-made capital causes depreciation of green capital via carbon emissions which the private sector does not internalize. A benevolent government uses carbon taxes to encourage Örms to substitute carbon intensive man-made capital with green capital that the production technology allows. Doing so, the damage to natural capital by emissions can be reversed through a lower, but socially optimal long run growth. This trade-o§ between environmental policy and long-run growth can be overcome by a combination of an investment in pollution abatement and higher total factor productivity

Keywords: Green growth; sustainability; carbon tax; clean growth; resource substitution (search for similar items in EconPapers)
JEL-codes: E1 O3 O4 Q2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-gro, nep-mac and nep-res
Date: 2019-06
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