Reaching national Kyoto-Targets in Germany by maintaining a sustainable development

Abstract

This paper investigates the sustainability of the German economy when reaching the Kyoto emissions reduction target. We use a special intergenerational discounting technique which actually takes into account intergenerational peculiarities in an overlapping generations modeling framework which leads to completely different statements than using the same model with a conventional discounting method. By applying this discounting technique sustainable growth paths of all economic variables can be reached with respect to overall welfare units at the expense of currently living ones. Their contribution to the achievement of "sustainability" can be interpreted as an application of an intertemporal polluter pays principle, where (negative) intertemporal externalities are - to a large extent - avoided. This is not only fair from a normative viewpoint, but also efficient due to the internalization of today's occurring external costs with respect to climate change.