A model of waste control and abatement capital: Permanent versus temporary environmental policies

In this paper we investigate the effects of introducing explicitly abatement capital in a welfare function which depends on waste stock and consumption. Consumption is assumed to produce an undesider- able residue. Society can control waste accumulation using abate- ment capital. We focus on two issues: the intertemporal relationship between abatement investment and waste emission, and the effects of permanent and temporary environmental policies on the long-run equilibrium of the economic-ecological system. We get three main results. First, for a society the problems of waste control and abate- ment investment are very interrelated. Any change in investment af- fects waste emission and consumption, but not always in a predictable manner. Second, we show that the adoption of either temporary subsi- dies or taxes do not change the long-run properties of the economy. It is not just current subsidies or taxes, but their entire path over time that affects accumulation of waste and capital. Third, we get that environmental policies may have ambiguous effects: in response to subsidies or taxes a society might accumulate less abatement capital than desidered, allowing the stock of waste to rise in the long run. Key words: Abatement investment; waste accumulation; dynamic optimization; environmental policy.