This paper describes a dynamic economy where country-specific welfare maximizing consumption and environmental protection allocations contributes to global environmental quality. Steady-state analysis reveals that the effects of exogenous energy efficiency and environmental policy leakage parameters on global environmental quality depend on elasticities of consumption and environmental protection expenditures. Energy efficiency impact on environmental quality is determined by the rate of change in the utility function and environmental effort.
There is a positive leakage effect on environmental quality when responsiveness to environmental protection allocations relative to consumption expenditures is greater, and their difference is greater than the inverse of discounted marginal utilities from consumption. Results suggest that country-specific policy actions can contribute to global effort to maintain a current environmental status, and an exogenous energy efficiency parameter supports developing and developed countries' collaboration in climate change mitigation.
