Optimal economic growth when CO2 constraints are critical

Past analyses of optimal growth behavior have ignored the constraints of fossil fuel production and the accumulation of atmospheric CO2 having a negative impact on production and productivity. The present analysis shows that, when consumption of fossil fuel resources under CO2 emission limits is incorporated into an optimal economic growth model, the result is a tendency to postpone capital accumulation and to spend time on turnpike growth paths where capital is used less intensively than in a non-CO2-constrained model of the economy. In the extreme case, where the only feasible growth path is the path of minimum fossil fuel use, all capital accumulation is postponed until the last possible moment. Of course, if technical progress comes with capital formation, only such a result would have to be conditional on the impacts of technical change.