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Optimal emission policy under the risk of irreversible pollution

Author

Listed:
  • Alain Ayong Le Kama

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Aude Pommeret

    (IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc)

  • Fabien Prieur

    (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

Abstract
We consider an optimal consumption and pollution problem that has two important features. Environmental damages due to economic activities may be irreversible and the level at which the degradation becomes irreversible is unknown. Particular attention is paid to the situation where agents are relatively impatient and/or do not care a lot about the environment and/or Nature regenerates at low rate. We show that the optimal policy of the uncertain problem drives the economy in the long run toward a steady state while, when ignoring irreversibility, the economy follows a balanced growth path accompanied by a perpetual decrease in environmental quality and consumption, both asymptotically converging toward zero. Therefore, accounting for the risk of irreversibility induces more conservative decisions regarding consumption and polluting emissions. In general, however, we cannot rule out situations where the economy will optimally follow an irreversible path and consequently, will also be left, in the long run, with an irreversibly degraded environment.

Suggested Citation

  • Alain Ayong Le Kama & Aude Pommeret & Fabien Prieur, 2014. "Optimal emission policy under the risk of irreversible pollution," Post-Print hal-01280775, HAL.
    • Handle: RePEc:hal:journl:hal-01280775
    DOI: 10.1111/jpet.12085
    Note: View the original document on HAL open archive server: https://hal.univ-grenoble-alpes.fr/hal-01280775
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Brausmann, Alexandra & Bretschger, Lucas, 2018. "Economic development on a finite planet with stochastic soil degradation," European Economic Review, Elsevier, vol. 108(C), pages 1-19.
    2. Raouf Boucekkine & Carmen Camacho & Weihua Ruan & Benteng Zou, 2022. "A dynamic programming approach to optimal pollution control under uncertain irreversibility: The Poisson case," DEM Discussion Paper Series 22-10, Department of Economics at the University of Luxembourg.
    3. Anne‐Sophie Crépin & Eric Nævdal, 2020. "Inertia Risk: Improving Economic Models of Catastrophes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(4), pages 1259-1285, October.
    4. Alain Ayong Le Kama & Aude Pommeret, 2017. "Supplementing Domestic Mitigation and Adaptation with Emissions Reduction Abroad to Face Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(4), pages 875-891, December.
    5. Aznar-Márquez, J. & Ruiz-Tamarit, J.R., 2017. "Sustainable growth and environmental catastrophes," Mathematical Social Sciences, Elsevier, vol. 89(C), pages 83-91.
    6. Fouad El Ouardighi & Hassan Benchekroun & Dieter Grass, 2016. "Self-regenerating environmental absorption efficiency and the $$\varvec{ soylent~green~scenario}$$ s o y l e n t g r e e n s c e n a r i o," Annals of Operations Research, Springer, vol. 238(1), pages 179-198, March.
    7. Prieur, Fabien & Tidball, Mabel & Withagen, Cees, 2013. "Optimal emission-extraction policy in a world of scarcity and irreversibility," Resource and Energy Economics, Elsevier, vol. 35(4), pages 637-658.
    8. R.Boucekkine & W.Ruan & B.Zou, 2024. "Optimal behavior under pollution irreversibility risk and distance to the irreversibility thresholds: A global approach," LIDAM Discussion Papers IRES 2024001, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    9. Pommeret, Aude & Yu, Xiaojun & Zhang, Lin, 2022. "Stringency of environmental policy in China: When pollution drives bribery," Economic Modelling, Elsevier, vol. 117(C).
    10. Prudence Dato, 2017. "Energy Transition Under Irreversibility: A Two-Sector Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(3), pages 797-820, November.
    11. Raoul Boucekkine & Weiha Ruan & Benteng Zou, 2023. "Optimal behavior under pollution irreversibility risk and distance to the irreversibility thresholds: A global approach," DEM Discussion Paper Series 23-16, Department of Economics at the University of Luxembourg.
    12. Juana AZNAR-MARQUEZ & Jose-Ramon RUIZ-TAMARIT, 2012. "Sufficient and Necessary Conditions for Non-Catastrophic Growth," LIDAM Discussion Papers IRES 2012027, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    13. Guo, Jian-Xin & Zhu, Kaiwei, 2021. "Implications for enterprise to adopt cleaner technology: From the perspective of energy market and commodity market," Research in International Business and Finance, Elsevier, vol. 57(C).
    14. Aznar-Márquez, J. & Ruiz-Tamarit, J.R., 2016. "Environmental pollution, sustained growth, and sufficient conditions for sustainable development," Economic Modelling, Elsevier, vol. 54(C), pages 439-449.

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    More about this item

    Keywords

    irreversibility threshold; Optimal control; optimal reversible and irreversible policy; uncertainty;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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