Parantap Basu, Tooraj Jamasb, and Anupama Sen have developed a model to assess the feasibility of sustainable economic growth that can exist in a net zero, circular economy. They compare the effectiveness of a passive carbon reduction policy where the government sets fixed targets and an active policy where the policymakers mandate the increase of emission reduction over time at a certain rate. Their findings reveal that sustainable economic growth requires a smooth transition from non-renewable energies to clean energies which can only be achieved if the production units allow for substitution between these two types of sources. Additionally, waste management is essential to obtain a more circular economy. Lastly, an active environmental policy will increase the pace of emission reduction allowing the attainment of a net zero carbon target faster.
Policy interventions need to focus on accelerating the substitution between renewable and fossil fuel sources of energy, waste management, pollution removal, and discouraging investments in brown activities. In the absence of perfect information available, governments should prioritize market-based approaches in these 4 areas to make participants reveal their preferences and enable information availability. This approach also reduces the cost of the transition as compliance with regulatory interventions can be costly. While a passive policy will cease once the creation of enabling conditions for efficient markets is achieved, an active policy will extend further to include investment limits in polluting sectors and the promotion of innovation in green technology.
Trilemma or Trinity? The nexus of economic growth, circular economy and net zero – ScienceDirect
