Handbook on Energy and Climate Change
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Handbook on Energy and Climate Change

Edited by Roger Fouquet

This timely Handbook reviews many key issues in the economics of energy and climate change, raising new questions and offering solutions that might help to minimize the threat of energy-induced climate change.
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Chapter 29: Prosperity with growth: economic growth, climate change and environmental limits

Cameron Hepburn and Alex Bowen


Debate has raged among and between economists, environmentalists and others about whether increases in production and consumption can be sustained for ever, or whether we are eventually destined for a ‘stationary state’ of income, labour and capital. This debate, at times, has been remarkably heated and ad hominem. Perspectives on the extent to which environmental and resource constraints will limit economic growth can be grouped into three categories. The first view is that environmental factors pose no limitation to economic growth. For instance, Lomborg (2001, ch. 12) claimed that resources are becoming more abundant. Simon (1981) famously asserted that there is no real limit to our capacity to keep growing, and made bets to prove it. Simon (1980) argues that the term ‘finite’ is ‘not only inappropriate but is downright misleading in the context of natural resources’. Until a decade ago, there appeared to be empirical support for the view that commodities were becoming more economically abundant (Johnson, 2000), given the long-term trend of declining commodity prices over the twentieth century (Dobbs et al., 2011). Such views are also in accordance with the central result of most standard neoclassical and endogenous growth models with labour, capital and human capital as the factors of production: provided technological progress continues, economic growth can be sustained indefinitely. And economic growth may generate technological progress, a view stretching back to Adam Smith’s argument that the division of labour is limited by the extent of the market (Smith, 1776).

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