Sustainable Green Growth

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Parantap Basu argues that a sustainable green growth is possible if the government efficiently combines carbon tax, pollution abatement and replenishment of green resources.

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Parantap Basu argues that a sustainable green growth is possible if the government efficiently combines carbon tax, pollution abatement and replenishment of green resources.

Image courtesy of interviewee. March 6, 2024

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This video video discusses the problem of fossil fuel consumption and environmental impact, presenting two key aspects: the "doom hypothesis" and the concept of negative externalities. The "doom hypothesis" suggests that society is destined to run out of oil due to peak production, a view the speaker disagrees with, arguing that innovation will continue to find and develop fossil fuel resources.

Instead, the more pressing issue highlighted is the negative externalities—environmental pollution from fossil fuel usage, which leads to greenhouse gas emissions and various adverse effects on the environment and public health. The speaker argues for the need for government intervention to address these externalities, primarily through carbon taxes and pollution abatement technologies.

The paper suggests that a balanced approach between fossil fuels and renewable energy ("green capital" vs. "dirty capital") is necessary for sustainable growth, proposing a multipronged strategy involving effective policies and instruments. The aim is to achieve a socially optimal mix of energy sources that maximizes intergenerational welfare, acknowledging that an abrupt transition to complete renewable energy is impractical.

This video video emphasizes the importance of government action in implementing these policies, advocating for a benevolent government that resists pressure from vested interests to achieve a healthier balance between economic growth and environmental sustainability. Overall, the proposed framework involves optimizing carbon taxes, enhancing pollution control technologies, and integrating recycling initiatives to promote a sustainable economic future while mitigating environmental harm.

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X-TIMESTAMP-MAP:LOCAL=00:00:00.000,MPEGTS=900000

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There are two aspects of this problem.

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Okay, lemme try to answer in two parts.

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First aspect is what?

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I give it a name. I give it a name. Doom hypothesis.

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Doom hypothesis being that we are all doomed

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because we'll run out of oil

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that is actually building on this,

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peak hypothesis that we are already at the,

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peak of oil production.

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And, if we con consume

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and use more oil, eventually we'll run out.

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And then there is a huge problem.

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I don't particularly subscribe to this view, I don't think,

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this is a really a, a serious problem.

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It's a misplaced fear. Why?

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Because we are constantly innovating, okay?

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We are innovating constantly to, have deeper

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and more difficult deposits of fossil fuels.

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And there will be constant innovations

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that there will be always incentives to do so

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therefore, I don't subscribe to this peak oil supply

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hypothesis, which I call doom hypothesis.

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Therefore, that's not going to happen.

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But there is another aspect

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of the problem which is potentially more serious.

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The problem is what we call

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in economics, negative externally

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inflicted by private producers who use fossil fuel

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intensive resources.

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As you know that if you use more

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and more fossil fuel, what you do,

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you pollute the environment,

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it produces greenhouse gas emissions.

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And this pollution has many,

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many adverse effects.

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So basically, this fossil fuel goes

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to the sky burn fossil fuel.

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It mixes with rain, it makes carbonic acid,

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it acid rain, it adver it has adverse effect on soil

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and creatures like worm, which aired the soil.

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And, there are adverse effects on the quality

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of food health.

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It's a big mess, and it's already happening

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in different countries in different degrees.

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But this is what we call negative externality

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because private producers, they do not

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internalize the cost of emission

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they produce with a profit motive,

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and they don't care how much pollution

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is released in the environment.

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So this is exactly where, where government needs

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to do something and there must be some policy instruments.

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And the conventional policy instrument is carbon tax.

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You got to pay for this emission

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that you are, releasing.

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But carbon tax alone cannot do this.

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And our research is basically focusing

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on two instruments.

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One is the carbon tax and the other is polluted abbit.

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This research I've been doing with the ach

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Jamas B, he's at the Copenhagen School of Energy

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and Environment and also work.

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I've started with Annu Palmen at the Smith School

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of Enterprise in Oxford University.

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So basically the answer to that, that the growth is possible

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and we are not going to run out

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of exhaustible resources if we manage it.

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Well. There are two kinds of resources, green resources

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and what we call dirty resource

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resources like convention.

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These are called clean capital

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and dirty capital, clean capitalists, green

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and dirty capitalists, fossil fuel intensive.

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It produces carbon in the environment.

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So what we need to do is to manage,

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and there are two groups of thinkers.

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One group is taking an extreme stand

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and they're taking that.

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We can't combine them.

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You have to just go clean, completely clean,

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get rid of fossil fuel energy.

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That's not very practical.

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This group is called strong, strong sustainability.

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And the other group, like, led by Robert Solo

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and Nor House, they're, they're taking about practical

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and pragmatic position that we have

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to have the proper combination of

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dirty and clean capital.

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And that combination has to be determined

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by a social planner, which will make the society happy.

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And in order to arrive at that particular combination,

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we need instruments.

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And this one instrument, major instrument is carbon tax.

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This I've been doing for quite some time.

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And in addition to that, you have to manage

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by having pollution.

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Uh, abatement technology written industrial policy has

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to be seen in a

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broad institutional surrounding, which involves

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140 countries, okay?

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Many countries are involved.

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And, there is

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intergovernmental panel on climate change,

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as you know, called IPCC.

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And this started limiting global warm

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to 1.5 degrees Celsius to,

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and we have to have this net zero target.

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Net zero has to be understood properly.

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Net zero target doesn't mean zero carbon,

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it basically means carbon

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in must balance carbon out.

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Okay? So that is the meaning of net zero.

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So in this context, UCAS

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10 point industrial policy is quite gigantic.

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It has many features,

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but I'm going to only focus on the,

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features which involved environment.

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The basic principle of the EU industrial policy state,

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you have to remove policy barriers

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to infrastructural investment, in renewable,

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mobilize, private sector investment into priority ideas,

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promoting debt, zero target.

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And also we can't forget that we need to have growth

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of GDP and growth of jobs.

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So we have to have a renewable climate where,

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which will harness growth, which will create employment.

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So that these are the basic, highlights

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of UK's industrial policy.

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This particular paper with ura Jamasbi have been working

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for nearly more than three years now.

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And I presented in many places,

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it is already a working paper.

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Uh, you can see that, it's called sustainable growth,

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with green capital.

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The basic idea of this paper is that as I told you

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to have a pragmatic policy of industrialization.

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By that I mean that I, we need to have some kind of a,

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in instrument to arrive at a socially optimal

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ratio of green to dirty capital.

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We don't want to have an environment

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where we completely get rid

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of fossil fuel intensive resources

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and have all renewable, all green.

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That is eventually the goal, but that's not going to happen.

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So what we need, we need to have a socially optimal

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ratio of green to dirty capital.

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And what is meant by socially optimal, by social ality,

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I mean this particular green

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to dirty capital will maximize intergenerational welfare.

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Not only our welfare,

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but also our future generation welfare,

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because we all know that we can't just get rid

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of fossil fuel overnight.

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And therefore if we do that, some

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of these renewable technology immediately

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could be quite expensive.

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As a result, we might have joblessness.

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So we have to have a balance

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and doing so we'll get a ratio of

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green capital to dirty capital.

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And then in order to arrive at that ratio,

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we need two instruments.

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One is the carbon tax, meaning that we tax

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the producers, producers, were polluting the environment

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in a proper way so that you see that in congested areas

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where vulnerable areas

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where there's already too much carbon.

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We, we want the them to pay more

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and maybe we can divert their production to areas where,

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there is not that much pollution.

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That's one thing. And the second is

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to have pollution abatement.

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Pollution abatement basically means we have to,

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lower the pollution by different means.

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And one of them is this carbon capture,

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this carbon capture and news.

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This is known as CCUS.

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People are doing this quite a bit In our paper,

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we have a model where we find an optimal carbon tax,

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which will, which will give rise to

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net zero target, which will fulfill our net zero target

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target via this pollution abatement technology.

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Okay? And that's what we are doing in this paper.

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And in another related paper with Palmer,

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we are also bringing another instrument that's called

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recycling, recycling of goods.

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And that's another way to sort of,

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this is actually kind of a ramification

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of CCUS carbon capture and usage.

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But there, but also there are other aspects like you throw

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away things, we throw plastics and we have recycled them

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and put this back in the production process.

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And this paper is,

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is at a preliminary stage.

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We are working quite intensively.

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So these are the two papers which contribute to,

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this literature.

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The mechanism as I, I just give, give you a hint,

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the mechanism is that we first solve

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a fictitious social planning problem.

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You don't see a social planner like that.

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But suppose there is a benevolent social planner

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who cares about not only current generation,

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but also future generation soil.

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But we give, we do some discounting.

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Of course, how much discounting will be done will be done

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to the future generation welfare.

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That's a policy question.

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Some people say

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that we should not discount at all future generations

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welfare, but that all can be accommodated.

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In our model, we have a dynamic model,

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and from there we derive a condition, which we call

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a efficiency condition, which will determine

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the efficient proportion of

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green to capital.

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That proportion social planner is mandating,

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the social planner is saying this is the right proportion.

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After this, we consider a decentralized economy.

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Social planning, planning economy is a centralized economy,

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but the planner is benevolent.

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But then we considerate decentralized economy

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where you have producers, we have consumers,

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we have government, and then the government takes the role

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of taxing the polluters and that taxes the carbon tax

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and the government taxes these polluters

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and use the tax revenues to replenish the environment.

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That's public investment.

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And government also uses that, that tax proceeds

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for the investment in pollution habit.

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There are, these are the instruments, right?

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So replenish, replenishing environment, then

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abatement of politician

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and doing so government

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materializes this ratio of green

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to opt dirty capital, which will make the society happy.

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Not only us, but also our future generation.

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So that is the basic idea.

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And the simulation is showing that if you,

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if you have more emission, then you have

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to pay more carbon tax.

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The carbon tax will be higher.

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But if the carbon tax is higher, it has a side effect

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as a result of that growth will be lower

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because producers will be disincentivized

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to produce more and the growth will be lower.

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But that's still okay for the society.

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We don't want too much growth and a bad environment.

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So we have to have the right balance and

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therefore there will be some negative effect on growth.

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And that way we can have an optimal carbon tax,

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which gives us an optimal growth,

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which makes the society happy.

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But this tax alone, as I said,

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cannot completely eliminate carbon retract.

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I'm not saying zero carbon.

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I'm, I'm, I'm saying that it's not going to,

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bring us net zero carbon economy for that.

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We need additional distribute.

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And for that we need a pollution abatement technology.

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And that's the second part of the paper.

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When you show exactly how with a combination of carbon tax

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and pollution abatement, we can make the society happy.

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And our simulation experiment shows that as a result of

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that, if you have a more efficient pollution abatement,

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then growth will be higher, carbon tax will be lower,

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and welfare in the economy will be higher.

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That's our simulation result.

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The policy implication is that the government, in order

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to materialize this goal,

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the government has to be benevolent

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And government should not be, should not be subject

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to pressure from vested interest business, right?

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And if it is needed, they have to impose the right,

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carbon tax, they have to implement policy.

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And there is already a lot of conflict about this produce.

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There are many producers who do not want to

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shift from fossil, fulfill fuel intensive, technology

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to a green technology.

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Even if it is possible.

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They don't want to do that

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because that is going to hurt their profit in the short run.

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So government has to stake an aggressive stat

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to implement this policy.

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And for this, we need a be government.

Addressing the Doom Hypothesis: A Policy Perspective

00:00:00 - There are two aspects of this problem. Okay, lemme try to answer in two parts. First aspect is what? I give it a name. I give it a name. Doom hypothesis. Doom hypothesis being that we are all doomed because we'll run out of oil that is actually building on this, peak hypothesis that we are already at the, peak of oil production. And, if we con consume
00:00:33 - And then there is a huge problem. I don't particularly subscribe to this view, I don't think, this is a really a, a serious problem. It's a misplaced fear. Why? Because we are constantly innovating, okay? We are innovating constantly to, have deeper and more difficult deposits of fossil fuels.
00:01:03 - that there will be always incentives to do so therefore, I don't subscribe to this peak oil supply hypothesis, which I call doom hypothesis. Therefore, that's not going to happen. But there is another aspect of the problem which is potentially more serious. The problem is what we call in economics, negative externally
00:01:36 - intensive resources. As you know that if you use more and more fossil fuel, what you do, you pollute the environment, it produces greenhouse gas emissions. And this pollution has many, many adverse effects. So basically, this fossil fuel goes
00:02:05 - It mixes with rain, it makes carbonic acid, it acid rain, it adver it has adverse effect on soil and creatures like worm, which aired the soil. And, there are adverse effects on the quality of food health. It's a big mess, and it's already happening in different countries in different degrees. But this is what we call negative externality
00:02:39 - internalize the cost of emission they produce with a profit motive, and they don't care how much pollution is released in the environment. So this is exactly where, where government needs to do something and there must be some policy instruments. And the conventional policy instrument is carbon tax.

Balancing Carbon Tax and Pollution Abatement

00:03:12 - that you are, releasing. But carbon tax alone cannot do this. And our research is basically focusing on two instruments. One is the carbon tax and the other is polluted abbit. This research I've been doing with the ach Jamas B, he's at the Copenhagen School of Energy and Environment and also work.
00:03:44 - of Enterprise in Oxford University. So basically the answer to that, that the growth is possible and we are not going to run out of exhaustible resources if we manage it. Well. There are two kinds of resources, green resources and what we call dirty resource resources like convention. These are called clean capital and dirty capital, clean capitalists, green
00:04:14 - It produces carbon in the environment. So what we need to do is to manage, and there are two groups of thinkers. One group is taking an extreme stand and they're taking that. We can't combine them. You have to just go clean, completely clean, get rid of fossil fuel energy. That's not very practical. This group is called strong, strong sustainability.
00:04:46 - and Nor House, they're, they're taking about practical and pragmatic position that we have to have the proper combination of dirty and clean capital. And that combination has to be determined by a social planner, which will make the society happy. And in order to arrive at that particular combination, we need instruments. And this one instrument, major instrument is carbon tax.
00:05:15 - And in addition to that, you have to manage by having pollution. abatement technology written industrial policy has to be seen in a broad institutional surrounding, which involves 140 countries, okay? Many countries are involved. And, there is intergovernmental panel on climate change, as you know, called IPCC.
00:05:48 - to 1.5 degrees Celsius to, and we have to have this net zero target. Net zero has to be understood properly. Net zero target doesn't mean zero carbon, it basically means carbon in must balance carbon out. Okay? So that is the meaning of net zero. So in this context, UCAS

Sustainable Growth and Carbon Management Strategies

00:06:23 - It has many features, but I'm going to only focus on the, features which involved environment. The basic principle of the EU industrial policy state, you have to remove policy barriers to infrastructural investment, in renewable, mobilize, private sector investment into priority ideas,
00:06:51 - And also we can't forget that we need to have growth of GDP and growth of jobs. So we have to have a renewable climate where, which will harness growth, which will create employment. So that these are the basic, highlights of UK's industrial policy. This particular paper with ura Jamasbi have been working
00:07:25 - And I presented in many places, it is already a working paper. you can see that, it's called sustainable growth, with green capital. The basic idea of this paper is that as I told you to have a pragmatic policy of industrialization. By that I mean that I, we need to have some kind of a, in instrument to arrive at a socially optimal
00:08:01 - We don't want to have an environment where we completely get rid of fossil fuel intensive resources and have all renewable, all green. That is eventually the goal, but that's not going to happen. So what we need, we need to have a socially optimal ratio of green to dirty capital. And what is meant by socially optimal, by social ality, I mean this particular green
00:08:32 - Not only our welfare, but also our future generation welfare, because we all know that we can't just get rid of fossil fuel overnight. And therefore if we do that, some of these renewable technology immediately could be quite expensive. As a result, we might have joblessness. So we have to have a balance and doing so we'll get a ratio of green capital to dirty capital.
00:09:03 - we need two instruments. One is the carbon tax, meaning that we tax the producers, producers, were polluting the environment in a proper way so that you see that in congested areas where vulnerable areas where there's already too much carbon. We, we want the them to pay more and maybe we can divert their production to areas where,

Strategies for Effective Pollution Management

00:09:33 - That's one thing. And the second is to have pollution abatement. Pollution abatement basically means we have to, lower the pollution by different means. And one of them is this carbon capture, this carbon capture and news. This is known as CCUS. People are doing this quite a bit In our paper, we have a model where we find an optimal carbon tax,
00:10:08 - net zero target, which will fulfill our net zero target target via this pollution abatement technology. Okay? And that's what we are doing in this paper. And in another related paper with Palmer, we are also bringing another instrument that's called recycling, recycling of goods. And that's another way to sort of, this is actually kind of a ramification of CCUS carbon capture and usage.
00:10:38 - away things, we throw plastics and we have recycled them and put this back in the production process. And this paper is, is at a preliminary stage. We are working quite intensively. So these are the two papers which contribute to, this literature. The mechanism as I, I just give, give you a hint, the mechanism is that we first solve a fictitious social planning problem.
00:11:09 - But suppose there is a benevolent social planner who cares about not only current generation, but also future generation soil. But we give, we do some discounting. Of course, how much discounting will be done will be done to the future generation welfare. That's a policy question. Some people say that we should not discount at all future generations welfare, but that all can be accommodated. In our model, we have a dynamic model, and from there we derive a condition, which we call
00:11:47 - the efficient proportion of green to capital. That proportion social planner is mandating, the social planner is saying this is the right proportion. After this, we consider a decentralized economy. Social planning, planning economy is a centralized economy, but the planner is benevolent.
00:12:14 - where you have producers, we have consumers, we have government, and then the government takes the role of taxing the polluters and that taxes the carbon tax and the government taxes these polluters and use the tax revenues to replenish the environment. That's public investment. And government also uses that, that tax proceeds for the investment in pollution habit.

Balancing Growth and Environmental Sustainability

00:12:47 - So replenish, replenishing environment, then abatement of politician and doing so government materializes this ratio of green to opt dirty capital, which will make the society happy. Not only us, but also our future generation. So that is the basic idea. And the simulation is showing that if you,
00:13:19 - to pay more carbon tax. The carbon tax will be higher. But if the carbon tax is higher, it has a side effect as a result of that growth will be lower because producers will be disincentivized to produce more and the growth will be lower. But that's still okay for the society. We don't want too much growth and a bad environment. So we have to have the right balance and therefore there will be some negative effect on growth. And that way we can have an optimal carbon tax,
00:13:50 - which makes the society happy. But this tax alone, as I said, cannot completely eliminate carbon retract. I'm not saying zero carbon. I'm, I'm, I'm saying that it's not going to, bring us net zero carbon economy for that. We need additional distribute. And for that we need a pollution abatement technology. And that's the second part of the paper.
00:14:23 - and pollution abatement, we can make the society happy. And our simulation experiment shows that as a result of that, if you have a more efficient pollution abatement, then growth will be higher, carbon tax will be lower, and welfare in the economy will be higher. That's our simulation result. The policy implication is that the government, in order to materialize this goal, the government has to be benevolent
00:14:55 - to pressure from vested interest business, right? And if it is needed, they have to impose the right, carbon tax, they have to implement policy. And there is already a lot of conflict about this produce. There are many producers who do not want to shift from fossil, fulfill fuel intensive, technology to a green technology.
00:15:35 - They don't want to do that because that is going to hurt their profit in the short run. So government has to stake an aggressive stat to implement this policy. And for this, we need a be government.

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