Green Public Investment, Consumption Patterns and the Ecological Transition: A Macroeconomic Analysis

Abstract

We develop an ecological stock-flow consistent (SFC) model to analyse the channels through which green public investment and a shift to more environmentally friendly consumption patterns can affect macroeconomic and environmental outcomes. A key novelty of our approach is that we consider explicitly the impact that green public infrastructure can have on the consumption decisions of households. We make a distinction between different types of green public investment based on their impact on consumption patterns, macroeconomic activity and carbon intensity. We show that green public investment that is conducive to environmentally friendly consumption patterns has the potential to lead to a reduction of the carbon footprint. However, the favourable environmental impact of green public investment is restricted due to the presence of rebound effects. The impact of rebound effects on emissions can be attenuated when green public investment is combined with the adoption of sufficiency practices that lead to a direct change in consumption patterns. A significant implication of our analysis is that green public investment policies and a transition to sufficiency need to take place in a complementary way, rather than in isolation.

Keywords: post-Keynesian economics, ecological macroeconomics, green public investment, consumption patterns, stock-flow consistent modelling

JEL Classification: E12, E62, Q57