Impact of the Pollution Emission Limits on Technological Structure of Production. A Modelling Approach1

Abstract

One-sector macroeconomic model with three competing/coexisting production technologies is considered. It is assumed that the producers choose between distinct technologies, which correspond to different generations of capital: (i) the cheapest dirtiest (“old”) one, the least capital intensive, (ii) a more expensive one being more capital intensive but less polluting, (iii) the cleanest but the most expensive one. The model is an optimizing one. It describes the behavior of an economy, provided the economic agents have perfect knowledge about the future and their goal functions are explicit and identical. The constraints included are those related to the technology of production as well as those representing social and political aspects of the economic policy (the minimum consumption rate, maximum debt to GDP rate). Under the assumption that there is no technical progress the results dismally indicate that the zero economic growth is inevitable. This outcome can, however, be averted by adding the technical progress. The model may be used for analysis of different scenarios of economic growth, emissions of pollutants, and ecological policy, as well as technical changes (progress) in production.