Sustainable Emission Control Policies: Viability Theory Approach

Kunhong Kim ; Jacek B. Krawczyk

Kunhong Kim, Corresponding author, Professor, Department of Economics & Institute of Economy, Hallym University, 1 Hallymdaehak-gil, Chuncheon, Gangwon-do, 24252, Korea kimku@hallym.ac.kr
Jacek B. Krawczyk, Adjunct Academic, School of Computer Science, Engineering and Mathematics, Flinders University, Australia. GPO Box 2100, Adelaide 5001, South Australia jacek.krawczyk@flinders.edu.au

JEL Classification: O44, Q53, Q52, C61

Abstract

Our interest is in the relationship between the environment and economic growth. Because various interest groups see this issue differently, the typical optimization approach based on representative agent is not suitable. This is mainly because assessing the relative weight between consumption and environment in the utility function in a democracy is a sensitive political process. On the other hand, constraints on capital, consumption, and pollution levels should be agreed considerably easier than the aforementioned weight because the constraints refer to quantifiable measures. We propose that a regulator can look for a feasible strategy for emission control that will maintain capital, consumption, and pollution in a closed set of constraints. Such a strategy is called viable in viability theory. Viability theory is the study of dynamic systems that asks what set of initial conditions will generate evolutions that obey the laws of motion of a system and remain in a certain state constraints set for the duration of the evolution. We apply viability theory to a neoclassical model to identify which current economic states are sustainable under smooth adjustments of abatement-rate in the future. Among many observations, we note that countries that embark on an ambitious abatement program may fail to maintain their economies within the state constraints if their present levels of capital and consumption are low.

Keywords:

Sustainability, Viability theory, Emission control, Environment, Growth

Acknowledgments

Authors are grateful to two anonymous referees for helpful comments. This work was supported by a National Research Foundation of Korea Grant funded by the Korean Government (NRF-2014S1A2A1A01026309). Research was initiated during Kunhong Kim’s six-month research visit to Victoria University of Wellington where Jacek Krawczyk was a Reader at the School of Economics and Finance.

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