Green transition and environmental quality: an evolutionary approach

Abstract

AbstractWe propose a model for exploring the feasibility and effectiveness of a green transition from dirty to clean technologies. It relies on an evolutionary framework for the technology selection that accounts for the environmental domain dynamics, in terms of pollution evolution. A regulator charges an environmental tax to the producers, and the agents can choose between the less profitable clean technology and the more profitable dirty one, which, however, is taxed to a greater extent with respect to the clean one. The environmental tax depends endogenously on the level of pollution, which rises because of the producers’ emissions. The pollution stock also naturally decays, and can be abated by involving the resources collected from the taxation. We analytically study the resulting two-dimensional model from both statically and dynamically, to understand under what conditions the green transition can take place and results in an improvement for the environmental quality. We show that excessive over-taxation of the dirty technology may be not beneficial, as steady state pollution level can increase above a certain taxation threshold and multiple steady states can emerge. Moreover, dynamics can result in persistent endogenous oscillations that systematically lead to a significant increase in pollution levels. Finally, we discuss the economic rationale for the results also in the light of possible policy suggestions.