Impact of fossil fuel transition and population expansion on economic growth

The existing works in endogenous growth have focused on technology and rarely on population impacts. In contrast, the research on environmental degradation caused by fossil fuel utilization has relied mostly on exogenous technology and population growth. Building upon the previous literature, I propose a dynamic growth model that allows the interaction between an economy and energy consumption of renewable and nonrenewable and the transitional path from one to another. I also allow endogenous population growth, where the population is affected by living standards and industrialization and indirectly natural resources through production, considering the trade-off between nonrenewable energy reserves and renewable resources. By creating a feedback loop from the population to the level of industrialization and GDP in this setup, GDP per capita’s growth rate is lower under endogenous population scenario relative to exogenous population growth. This particular outcome conveys that many projections for future energy use might overestimate our energy use, hence the economic and environmental costs. Firms utilize nonrenewable energy more intensively in a decentralized model since they do not fully internalize the negative externalities that arise from using nonrenewable energy, unlike the social planner approach. Imposing carbon-tax elements on the energy producers’ profit would accelerate clean energy adaptation and sustain the fossil fuel resources for a more extended period while increasing the total welfare by 3%. It would also increase the individuals’ long-term total consumption.