Economic Growth and Climate Change without an Environmental Treaty

The objective of this paper is to view climate change in the framework of economic growth under no controls on emissions as the baseline modeling for further research in formulating an environmental treaty. This paper analyses the economic growth with dynamic of emissions and its impacts under an overlapping-generation model. The burning of fossil fuels main source of greenhouse gases, and renewable energy allowing a sustainable development are introduced into the model. Moreover, this paper contains explicit formalizations of the depletion process of exhaustible fossil fuels and the phase of technology substitution. There exists a competitive equilibrium under which the world’s stock of fossil fuels is depleted in finite time, and depending on the values of the parameters, there might also exist an inefficient competitive equilibrium under which part of the world’s stock of fossil fuels is left in situ forever unexploited. The paper also studies the impact of climate change on capital flows and welfare across countries.