Abstract for: Economic Growth, Pollution, and the Accumulation of Abatement Capital in a System Dynamics Framework

This paper develops a model of economic growth when emissions are generated as a byproduct of the production process. The production of goods yields income that can be used either for consumption or investment. The production of goods also induces an undesired byproduct – emissions. The emissions accumulate to a stock of pollutants which in turn impairs the economy. The consumption of good, in contrast, leads to an improvement of societal well-being. The positive impact of consumption utility and the negative impact of pollution are measured by a welfare function. In this setup of the problem there are two basic intertemporal control problems to solve: First, the society has to decide how much to consume today and how much tomorrow. Second, it has to decide how much of GDP should be invested in pollution abatement over time. The SD model developed in this paper allows simulating the consequences of policy choices and searching for optimal policy strategies. Several simulation scenarios demonstrate the scope of the modeling approach.