A Model of Technological Growth under Emission Constraints

Rovenskaya, E. ORCID: https://orcid.org/0000-0002-2761-3443 (2006). A Model of Technological Growth under Emission Constraints. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-06-021

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Abstract

We suggest and analyze a model of global technological growth under a prescribed constraint on the annual emission of greenhouse gases (GHG). The model assumes that industrial GHG emission is positively related to the world's production output driven by the development of the "production"technology stock. "Cleaning" technology is developed in parallel to keep the annual GHG emission within a "safety" zone. The ratio between annual investment in "cleaning" technology and annual investment in "production" technology acts as a time-variable control parameter in the model. Under a set of natural assumptions we find an optimal control which maximizes an integral utility characterizing the rate of economic growth over a given time period. In substantial terms, the optimal control strategy suggests that "production" technology is developed at a maximum rate until a critical point is reached at which the annual emission hits the prescribed upper bound. In the subsequent period investment in "production" and "cleaning" technology is planned so that the annual emission "tracks" the prescribed upper bound. One should note that the proposed control strategy optimal with respect to the chosen utility, is the most risky one since it assumes a minimum distance to the boundary of the "safety" zone.

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