In a world of transnational or global pollution, the optimal protection of the environment requires an international, and sometimes a global, coordination of emission control policies. Hence, the analysis of sustainable growth, and of the related optimal environmental policy, must take into account the international dimension of the environment. Define as ‘sustainable’ a growth path which accounts for the various functions of environmental resources (in production and consumption). Even if all countries solve the intertemporal optimisation problem, and define a domestic emission path which can ensure the environmental sustainability of economic growth, the existence of transnational and global externalities leads to a suboptimal outcome through various forms of free-riding behaviour.
On the one hand, the global effects of some forms of pollution jeopardise the unilateral attempts at reducing emissions; on the other, the appropriability of a cleaner global environment by all countries provides an incentive not to join global environmental agreements, undermining the attempts at cooperation through free-riding. Hence the need for international coordination.
In principle, the required coordination of emissions could be obtained through a set of global regulations, implementing an optimal management of emissions. However, in the existing institutional setting, there is no authority which can impose supranational environmental policies, and emissions coordination has to be obtained through voluntary agreements among sovereign countries.
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