Answer 1:

The global pursuit of carbon neutrality is fundamentally reshaping economic growth theory, compelling a shift away from traditional models that prioritize output maximization while treating environmental degradation as an externality. As decarbonization becomes an imperative, environmental constraints, resource limits, and natural capital must be embedded directly into growth models, not as peripheral concerns but as central determinants of long-term prosperity.

 

Incorporating a finite carbon budget into production functions redefines growth dynamics. Traditional Solow and endogenous growth models, which assume boundless emissions sinks, are giving way to frameworks where output depends not only on capital and labor but also on a capped emissions factor. This transforms marginal abatement cost curves into core analytical tools, alongside marginal productivity. Technological change also undergoes a fundamental shift. Innovation is no longer treated as a neutral, exogenous driver of growth. Instead, it becomes policy-directed, with carbon pricing, green subsidies, and regulation actively steering R&D toward low-carbon solutions. This form of "directed technical change" alters the trajectory of productivity growth, accelerates the depreciation of high-emission assets, and prioritizes resource efficiency and the dematerialization of output.

 

Growth theory must now expand its scope. It must analyze the macroeconomic implications of structural transition, stranded assets, and the massive investments required for decarbonization. Distributional concerns also move to the forefront, as developing economies face tighter carbon constraints and greater reliance on international climate finance and technology transfer. In this context, convergence theory must adapt to a world of differentiated emissions pathways.

 

Moreover, conventional welfare metrics like GDP are no longer sufficient. Growth models increasingly integrate alternative indicators reflecting climate resilience, intergenerational equity, and environmental quality. Concepts such as "green growth," "sustainable development," and even "post-growth" or "degrowth" in certain high-income contexts are gaining traction, prompting deeper inquiry into what constitutes optimal growth in an environmentally bounded world.

—By Assoc. Prof. Kai Wu, Central University of Finance and Economics, China