Energy the environment, and economic growth

Economic growth is a critical determinant of demand for energy. Utilization of energy, especially combustion of fossil fuels, is an important source of environmental pollution. Growth projections are essential for estimates of future demands and supplies of energy and future requirements for pollution controls to maintain environmental quality. The natural point of departure for modeling economic growth is the neo-classical theory of growth that has been originated. This theory has been developed in the form used in modeling the interrelationships among energy, the environment, and economic growth. In the neo-classical theory of growth, wage rates grow at the same rate as productivity in the long run, whereas rates of return depend on productivity growth and parameters that describe saving behavior. These long-run properties of economic growth are independent of energy and environmental policies. The neo-classical theory of economic growth also provides a framework for projecting intermediate-run growth trends. These trends not only depend on the same factors as long-run trends but also depend on energy and environmental policies through their effects on capital accumulation and rates of productivity growth over shorter periods. Intertemporal general equilibrium modeling provides a very worthwhile addition to methodologies for modeling the economic impact of energy and environmental policies. The neo-classical theory of economic growth is essential for understanding the dynamic mechanisms that underlie long-run and intermediate-run growth trends.