Impact of the Greenhouse Gases Limiting Policy on Economic Growth and Structure

The aim of the paper is to investigate an adjustment of the national economy as a whole and its sectors to the instruments of the greenhouse gases emission limiting policy. Whatever instruments of that policy are applied, the expected result is technology conversion. In that very case of imposition of the emission limits, the enterprises are being forced to replace cheaper, more polluting production technology by a cleaner, but more capital-intensive one. In a static economy, using fixed and unchanged technology, and oscillating around certain long-term growth rate, such limits force an economy to achieve a steady state or, in another words, a zero-growth equilibrium. In the long run, however, the economic growth is determined by the factors, which ease the emission constraints by decreasing emission intensity of production. Such effects are caused by the technical progress induced not only by innovation associated with the R&D efforts, but also by learning of the economic agents. An attention in this research has been focused on the relations between the investment rates in the sectors before and after the transition from the former to new technologies. Our main interest was in the analysis of the feasibility and duration of the transition process in the economy as a whole and in its parts, with respect to the viable macroeconomic investment rate and investment rates in the parts of the economy. The problem of feasibility of such a process consists in the fact that in many important cases the static equilibrium can be calculated but cannot be achieved. Another topic of interest was the impact of restrictions on allocation between sectors on the duration of the transition process. In order to investigate the above mentioned adjustments, a model has been developed consisting of three sectors, which produce, respectively, intermediary goods (raw materials and energy), consumer goods, and capital assets. Such assumptions of the model were aimed at studying dynamics of the structure and behavior of sectors during the transition period of technology conversion. Output of each sector is determined by the demand for its product, while the production capacity is determined by the two-factor production function. Demand for the product of a sector is a sum of demands generated in all sectors. Firms in each sector choose between competing technologies, but specific restriction due to the emission limits determines the winning one. In response to the imposition of an emission limit, in the medium-term the economy achieves (not assuming an influence of the technical progress) zero-growth equilibrium. No assumptions have been adopted concerning full use of the production capacities. For the purpose of such an analysis it was sufficient to assume that in the long run the economy reproduces the state of incomplete production capacity utilization in sectors. In the long-term the economy achieves a non-zero growth rate dependent on the rate of reduction of emission intensity. All calculations have been made on the data for Poland.