Dynamical Analysis of Evolutionary Transition Toward Sustainable Technologies

We propose a model for exploring the feasibility of the green transition between dirty and clean technologies. It relies on an evolutionary framework for the technology selection interacting with the environmental domain, which describes the evolution of pollution. A regulator charges an ambient 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 taxation. We analytically study the re-resulting two-dimensional model from both the static and the dynamical points of view, to understand under what conditions the green transition can take place and result in an improvement in the environmental quality. We show that excessive over-taxation of dirty technology may be not always beneficial, as steady-state pollution levels 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 light of possible policy suggestions