Green Economy: Great Expectation or Big Illusion?

Simple growth accounting shows that the negative scale effect of economic growth on the environment can be compensated by a composition effect, increasing the weight of less polluting productions, and by a technical progress favorable to the environment, in order to make possible a sustainable growth path. To achieve this result a combination of environmental regulation and innovation policy is required. Revenues from economic instruments of environmental regulation can be earmarked to environmental friendly innovations; difficulties arise because of the trade off with using those revenues as redistributive means to compensate the usually regressive nature of environmental regulation. The �case study� of the energy and climate program of President Obama is an example of the complexity of the challenge to move towards the target of a �green economy�. A complementary essential role of social environmental responsibility both of consumers and firms is required.