Green Growth and Sustainable Development PDF
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Dynamic Modeling and Econometrics in Economics and Finance Volume 14 Editors StefanMittnik UniversityofMunich Munich,Germany WilliSemmler BielefeldUniversity Bielefeld,Germany and NewSchoolforSocialResearch NewYork,USA Forfurthervolumes: www.springer.com/series/5859 Jesús Crespo Cuaresma (cid:2) Tapio Palokangas (cid:2) Alexander Tarasyev Editors Green Growth and Sustainable Development Editors JesúsCrespoCuaresma AlexanderTarasyev DepartmentofEconomics DynamicSystems ViennaUniversityofEconomics InstituteofMathematicsandMechanics, andBusiness UrBRAS Vienna,Austria Ekaterinburg,Russia and AdvancedSystemAnalysis TapioPalokangas InternationalInstituteforAppliedSystems UniversityofHelsinkiandHECER Analysis(IIASA) Helsinki,Finland Laxenburg,Austria ISSN1566-0419 ISBN978-3-642-34353-7 ISBN978-3-642-34354-4(eBook) DOI10.1007/978-3-642-34354-4 SpringerHeidelbergNewYorkDordrechtLondon LibraryofCongressControlNumber:2012955487 ©Springer-VerlagBerlinHeidelberg2013 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof thematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation, broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionorinformation storageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodology nowknownorhereafterdeveloped.Exemptedfromthislegalreservationarebriefexcerptsinconnection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. 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Printedonacid-freepaper SpringerispartofSpringerScience+BusinessMedia(www.springer.com) Introduction This book examines problems associated with green growth and sustainable de- velopment using economic theory, systems theory and optimal control theory. Especially, questions of sustainability of economic growth are crucial for green economiesenvisaginglocalandglobalenvironmentalconstraints,biodiversityman- agement, human capital development, improvements in resource productivity, and investments in new technologies. The focus is on elaboration of series of mod- els which catch interactions of production factors as driving forces of economic growth. ThebookisbasedonmaterialprovidedfortheSymposium“GreenGrowthand Sustainable Development Symposium” held at the International Institute for Ap- plied Systems Analysis (IIASA) on the 9th–10th of December, 2011, within the IIASAProject“DrivingForcesofEconomicGrowth”(ECG).Thesymposiumwas organizedbycoordinatorsoftheECGproject:JesusCrespo-CuaresmafromIIASA WorldPopulationProgram,TapioPalokangasandAlexanderTarasyevfromIIASA AdvancedSystemsAnalysisProgram. Thechaptersofthebookarepresentedinapopular-sciencestyleandcanbein- terestingtoawiderangeofscientificliteraturereaders.Theprimeaudienceforthe bookiseconomists,environmentalmanagers,mathematiciansandengineerswork- ingonproblemsofeconomicgrowthandenvironmentregulation.Themathematical partofthebookiswritteninarigorousmanner,andthedetailedanalysisisexpected tobeofinteresttospecialistsindynamicsystems,optimalcontrolandapplications toeconomicmodeling. The book starts with three chapters on optimal economic growth with environ- mentalconstraints,continueswiththreechaptersonthecontrolofclimatechange, abatement and biodiversity, and with two chapters on dynamics of environmental policy,andendsupwithtwoapplicationsofsystemstheorytothesupplyofenergy. As a whole, the book provides an integrated view on environmental policy in the settingofeconomicgrowthanddynamics. The first part, “Optimal Economic Growth with an Environmental Constraint”, is devoted to methodological problems of economic growth arising in presence of environmental constraints and lack of resources. It considers models oriented on v vi Introduction optimizationofinvestmentsinproductionfactors,examinesoptimaltransitionaldy- namicsandforecastsfuturetrendsofeconomicdevelopment. SergeyAseev,KonstantinBesov andSergueiKaniovskistudy optimalresearch and extraction policies in an endogenous growth model in which both production andresearchuseexhaustibleresources.Theyshowthatoptimalgrowthisnotsus- tainableif the accumulationof knowledgeuses exhaustibleresources, or if the re- turnstoscaleinresearcharedecreasing,ortheeconomyistoosmall.Theauthors statethemodelasaninfinite-horizonoptimalcontrolproblemwithanintegralcon- straintonthecontrolvariables.Theyconsiderthemainmathematicalaspectsofthe problem, establish an existence theorem and derive an appropriate version of the Pontryaginmaximumprinciple,andgiveacompletecharacterizationoftheoptimal transitionaldynamics. UllaLehmijokidevelopsalong-runconsumeroptimizationmodelwherepollu- tionaggravatesmortality.Inthatmodel,theoptimalgrowthpathissustainableifit providesnon-decreasingconsumptionforanon-decreasingpopulation.Asusually, optimalityandsustainabilitymayconflict;withpopulationendogenoustopollution, thisconflictmayultimatelyleadthehumanspeciestowardself-imposedextinction. Inthatcase,noteventechnicalprogresscanwarrantsustainability. Alexander Tarasyev and Bing Zhu analyse a dynamic optimization model of investment in the improvement of resource productivity in order to find balanced growth trends in terms of consumption and the use of natural resources. This re- search is closely connected with the problems concerning shortages of natural re- sourcestocks,thesecurityofsupplyofenergyandmaterials,andtheenvironmental effectiveness of their consumption. The author’s main idea is to introduce an in- tegrated environment to control the management of the investment process in the development of basic production factors such as capital, energy and material con- sumption. Essential features of the model are (i) the possibility to invest in econ- omy’sdematerializationand(ii)thepriceformationmechanismwhichpresumesthe rapid growth of prices on exhausting materials. The authors solve optimal control problemfortheinvestmentprocessbythePontryaginmaximumprinciple,showing thatforspecificrangeofthemodelparameters,thereexiststheuniquesteadystate oftheHamiltoniansystem.Thisenablestheexistenceofasustainablegrowthpath inaneconomywithexhaustingresources.Bytheseresults,strategiesforinvestment in dematerialization, resource and environmental management can be constructed forthepurposetoshifttheeconomicsystemfromnon-optimalpathstosustainable development. The second part, “Biodiversity, Abatement and Climate Change”, comprises chaptersthataddressapplicationofdynamicsystemsmodelingtoeconomicgrowth, withespecialfocusonissuesofenvironmentalimpactandpolicyregulation. TapioPalokangasexaminesagroupofcountrieswheretheconservationofland anywhereyieldsutilityeverywherethroughbiodiversity.Allcountriesproducethe same good from labor and land and improve their productivity through abatement investment. The international agency performing biodiversity management is self- interested.Palokangascomparesthreecasesofbiodiversitymanagement:(i)laissez- faire,(ii)theregulationoflanduse,and(iii)subsidiestotheconservationofland. Introduction vii Hisresultsarethefollowing.Regulationpromotesbiodiversity,abatementandwel- fare. Because subsidies must be financed by distortionary taxes, the replacement ofregulationbysubsidieshampersbiodiversity,abatementandwelfare.Appliedto NATURA 2000 in the EU, this suggests that regulation without any budget is the appropriatedegreeofauthorityfortheCommission. Due to recent global discussions about climate change and its possible conse- quences,theusageofenvironmentalpolicyinstrumentswiththeintenttocounteract againstthecurrentenvironmentaldevelopmentshasbecomeincreasinglyimportant. Elke Moser, Alexia Prskawetz and Gernot Tragler investigate the impact of envi- ronmentalstandardsoncapitalaccumulationandR&Dinvestmentsinaneconomy whereboth,brown(dirty)aswellasgreen(clean)capitalcanbeusedinproduction. Environmentalregulationaspolicyinstrumentiscommonlysupposedtoreduceor ideally minimize emissions and pollution. The authors show that such regulations can repress innovation and economic growth rather than induce a shift toward a greenertechnology. Nordhaus(2000,2008)developedadynamicmodelthatlinkseconomicgrowth with climate change. Helmut Maurer, Johann Jacob Preuß and Willi Semmler present variants of that model, building on the dynamic model of Greiner et al. (2010),whodiscussmultipleequilibriaandthresholdsinacanonicaloptimalcon- trolproblemwithinfinitehorizon.Theauthorsstudyvariousextensionsofthebasic optimal control problem and compare the solutions for finite horizon and infinite horizon.Theyadmitterminalconstraintsforthestatevariable,considertheimpacts ofconstraints(suchasCO2andtemperatureconstraints)onabatementpoliciesand consumption, and attempt to control the temperature by suitable penalties on the temperature.Theintroductionoftheseconstraintsallowsexploringtheimplications for mitigation policies that arise from the Kyoto treaty (CO2 constraint) and the Copenhagenagreement(temperatureconstraint). The third part, “Dynamics of Environmental Policy with an Oligopoly”, deals with dynamic game modelingof oligopolisticcompetitionwith environmentalex- ternalities. LucaLambertiniandGeorgeLeitmannadoptastepwiseapproachtotheanalysis of a dynamic oligopoly game in which production exploits a natural resource and pollutestheenvironment.Theystartwithsimplemodelswherefirms’outputisnot afunctionofthenaturalresource toendupwithafull-fledgedmodelinwhich(i) the resource is explicitly considered as an input of production and (ii) the natural resource and pollution interact via the respective state equations. They show that therelationshipbetweenthewelfarepropertiesoftheeconomicsystemandthein- tensityofcompetitionissensitivetothedegreeofaccuracywithwhichthemodelis constructed. Theestablishedviewonoligopolisticcompetitionwithenvironmentalexternal- ities has it that, since firms neglect the external effect, their incentive to invest in R&D for pollution abatement is nil unless they are subject to some form of envi- ronmental taxation. Davide Dragone, Luca Lambertini and Arsen Palestini take a dynamic approach to this issue, showing by a simple differential game that con- clusion reached by the static literature is not robust: the introduction of dynamics viii Introduction showsthatfirmsdoinvestinR&Dforenvironmental-friendlytechnologiesthrough- outthegame,aslongasR&Disaccompaniedbyanoutputrestrictionexhibitinga distinctively collusive flavor. The authors show that there exists a feasible tax rate thatinducesprofit-seekingfirms to choosea combinationof outputandR&D that imposesthesamelevelofsocialwelfareasinthefirstbest. Thefourthpart,“ApplicationofDynamicSystemstoEnergySupply”,consistsof papersthatanalyseoftheroleofenergysupplyandnewtechnologiesineconomic growthandenergytransition. ChihiroWatanabeandJae-HoShinconsidergreentechnologydrivenenergyfor sustainablegrowthbytheJapaneseexample.Japanhasconstructedasophisticated co-evolutionary dynamism between innovation and institutional systems by trans- forming external crises into a springboard for new innovation.This can largely be attributedtotheuniquefeaturesofthenationsuchashavingastrongmotivationto overcoming fear based on xenophobia and uncertainty avoidance as well as abun- dant curiosity, assimilation proficiency, and thoroughness in learning and absorp- tion.Suchexplicitdynamismwastypicallydemonstratedbytechnologysubstitution for energy in the 1970s leading Japan to achieve a high-technology miracle in the 1980s.Whilethisdynamismshiftedtotheoppositedirectioninthe1990sduetoa systemconflictwiththeriseoftheinformationsociety,recentincreaseinoilprices has signaled the possibility of a paradigm shift to a post-oil society. In addition, globaleconomicstagnationduetoexcessiveconsumptionhasbeeninducing“new normal”customerssupra-functionality.Theauthorsshowbyempiricalanalysisthat thesetrendsinevitablycompeltoexplorehighefficientphotovoltaic(PV)system. BoHu,ArminLeopoldandStefanPicklpresentaSystemDynamicsmodelthat depicts the development of the energy market in Germany in an aggregated form. Theyusethatmodeltocomparedifferentpossiblepathwaysoftheimpedingenergy transition.TheirsimulationsshowthataconceptpresentedbytheGermanAdvisory Council on Environment (SRU) will only achieve about 31% GHG mitigation in 2025comparedto1990,despitethehighcostsduetoplannedhugestoragecapacity. A more effective GHG mitigation of about 40% can be achieved at a lower cost bymakinguseofhigherwindandphotovoltaiccapacitiesincombinationwiththe capabilitytoproducesyntheticnaturalgas(SNG)usingexcesselectricityfromwind andsolarenergy. Weexpectthattheresultsofthismonographprovidereaderswithamethodologi- caltechniqueandmodelingenvironmentforanalysisofeconomicgrowthprocesses, and give an instrument for forecasting growth trends and improving its precision. Furthermore,themodelselaboratedinthebookcouldserveashelpfultoolsforpol- icyadviceindesigningstrategiesofeconomicandenvironmentalmanagement. Contents PartI OptimalEconomicGrowthwithanEnvironmentalConstraint The Problem of Optimal Endogenous Growth with Exhaustible ResourcesRevisited. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SergeyAseev,KonstantinBesov,andSergueiKaniovski OptimalPollution,OptimalPopulation,andSustainability . . . . . . . . 31 UllaLehmijoki OptimalProportionsinGrowthTrendsofResourceProductivity . . . . . 49 AlexanderTarasyevandBingZhu PartII Biodiversity,AbatementandClimateChange InternationalBiodiversityManagementwithTechnologicalChange . . . 69 TapioPalokangas EnvironmentalRegulations,AbatementandEconomicGrowth . . . . . . 87 ElkeMoser,AlexiaPrskawetz,andGernotTragler Optimal Control of Growth and Climate Change—Exploration of Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 HelmutMaurer,JohannJakobPreuß,andWilliSemmler PartIII DynamicsofEnvironmentalPolicywithanOligopoly MarketPower,ResourceExtractionandPollution:SomeParadoxesand aUnifiedView. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 LucaLambertiniandGeorgeLeitmann The Incentive to Invest in Environmental-Friendly Technologies: DynamicsMakesaDifference . . . . . . . . . . . . . . . . . . . . . . 165 DavideDragone,LucaLambertini,andArsenPalestini ix x Contents PartIV ApplicationsofDynamicSystemstoEnergySupply UtmostFearHypothesisExploresGreenTechnologyDrivenEnergyfor SustainableGrowth . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 ChihiroWatanabeandJae-HoShin TransitionTowardsRenewableEnergySupply—ASystemDynamics Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 BoHu,ArminLeopold,andStefanPickl Contributors SergeyAseev InternationalInstituteforAppliedSystemsAnalysis(IIASA),Lax- enburg,Austria;SteklovMathematicalInstitute,Moscow,Russia KonstantinBesov SteklovMathematicalInstitute,Moscow,Russia DavideDragone DepartmentofEconomics,UniversityofBologna,Bologna,Italy BoHu UniversitätderBundeswehrMunich,Neubiberg,Germany Serguei Kaniovski Austrian Institute of Economic Research (WIFO), Vienna, Austria Luca Lambertini Department of Economics, University of Bologna, Bologna, Italy;ENCORE,UniversityofAmsterdam,Amsterdam,TheNetherlands UllaLehmijoki UniversityofHelsinkiandHECER,Helsinki,Finland George Leitmann College of Engineering, University of California at Berkeley, Berkeley,CA,USA ArminLeopold UniversitätderBundeswehrMunich,Neubiberg,Germany HelmutMaurer InstitutfürNumerischeundAngewandteMathematik,Universität Muenster,Münster,Germany Elke Moser Wittgenstein Centre (IIASA, VID/ÖAW, WU), VID/ÖAW, Vienna, Austria ArsenPalestini MEMOTEF,SapienzaUniversityofRome,Rome,Italy TapioPalokangas UniversityofHelsinkiandHECER,Helsinki,Finland StefanPickl UniversitätderBundeswehrMunich,Neubiberg,Germany JohannJakobPreuß InstitutfürNumerischeundAngewandteMathematik,Uni- versitätMuenster,Münster,Germany xi
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