Abstract
The threat of climate change is raising important questions regarding how could we organize our economic activity in order to deal with the imminent increases in temperature and their consequences. In Chap. 4, we analysed how could the negative externalities from production be internalized, and studied the possible benefits and disadvantages of relying on a tax or cap-and-trade system. Finally, we looked at alternatives to dealing with climate change, such as adaptation and geoengineering strategies. Indeed, many important questions arise when considering the different options, and relying on one strategy or the other is by far not an easy choice. However, besides the practicalities of dealing effectively with climate change, this threat might as well be an opportunity to fundamentally question our entire socio-economic system that created the problem in the first place. Is the climate crisis an unavoidable outcome of a system that always tries to evolve, and should we, thus, find the best way to deal with it? Or, are there some fundamental flaws in this system that we could avoid? This chapter focuses on the link between economic growth and the environment.
The economy is a subsystem of the environment and depends upon the environment both as a source of raw materials and as a ‘sink’ for waste outputs.
Herman E. Daly
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- 1.
Unlike the previous model, where the production is a function of cumulated capital, here we rely on an intermediary input. For example, the total production of a bakery could be expressed as a function of the furnishings (such as ovens and other physical capital build up) or as a function of the flow of intermediary goods (such as electricity, sugar, flour) the bakery inputs to create pastery. Expressing the production function in terms of the latter (the intermediate goods) allows one to model business decisions in the intermediate good sector and study competition and innovation outcomes.
- 2.
In this model, a strong assumption is made that that the skills required for operating dirty technology are the same as for operating clean technology. Therefore, the homogeneous labour will require and accept the same wage level w no matter which technology they are employed to operate.
- 3.
However, one needs to be aware that it is many times easier to set and agree on a quantitative target, while it can be much more subtle and challenging to define a qualitative one.
- 4.
The developed-developing classification is of course not a binary one. In reality, one could talk about an entire spectrum of development stages. From this perspective, a country’s commitment to pursuing economic development should ideally take into account both its specific setting and the international context.
- 5.
In the strict sense of quantitative expansion, as opposed to qualitative improvement.
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Chesney, M., Gheyssens, J., Pana, A.C., Taschini, L. (2016). Economic Growth and the Environment. In: Environmental Finance and Investments. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-48175-2_5
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