Polluting non-renewable resources, tradeable permits and endogenous growth

Abstract

We set up an endogenous growth model with vertical innovations in which the use of a non-renewable resource within the production process generates a flow of pollution. This flow negatively affects the dynamics of the stock of environment, which is an argument of the non-separable utility function. We study the general equilibrium effects of an environmental policy consisting in emissions of tradeable permits. In particular, we show that a more stringent policy can lead, by the channel of the permits price dynamics, to more R&D; in all cases it promotes growth.