1. Economic Growth and The Environment
M. Scott Taylor
University of Wisconsin
Department of Economics

2. The One Industry Case

3. Decomposition

4. The Many Industry Case

5. The Many Industry Case

6. Economic Growth Implies a positive scale effect, Y is growing
For Pollution to fall we need:

7. Our Hope is Income Growth
Divide Y growth into Y/N and N growth
Assume Y/N growth leads to
A Mix of Cleaner Industries
Cleaner Techniques
ZPG

8. Techniques must change
A changing composition of output cannot save us in the long run.
We need

9. Problem
Continual growth with environmental improvement requires falling emissions per unit of output.
But lowering emissions per unit of output comes at increasing cost, because of Diminishing Returns.

10. Implication Pollution abatement costs should rise precipitously
This lowers the return to investment
This should choke off growth

11. Potential Solution Technological progress holds costs down
The return to capital accumulation is not choked off
Growth with environmental improvement is possible

12. Could it be True?
3 pieces of evidence in favor
2 Caveats

13. Exhibit A
Emissions per dollar of output are falling

16. Exhibit B
Pollution Abatement costs have been rising, but as a fraction of US Real Output they are virtually constant.
Costs as a fraction of Manufacturing Value-added are small.

18. Exhibit C The Environmental Kuznets Curve
Many pollutants at first rise with development and then fall
This holds for many pollutants, different countries, and time periods

23. The Case
Technological Progress in abatement is needed to control costs and sustain growth
Evidence, although sketchy, does indicate large role for technological progress in abatement.
New environmental problems will be dealt with in turn and successfully.

24. Caveat 1 Success is not guaranteed
Many earlier societies wrestled with their environmental problems and lost
At the time, they were the most advanced, cultured and civilized groups
Are we really different?

26. Caveat 2
All Solutions require property rights over air, water, soil, etc.
Some environmental problems are global, with uncertain and potentially large costs
The evolution of property rights regimes is not well understood
How civilized are we?