No. 2018-12 - Is Natural Capital Really Substitutable?

Date: 05 January 2019

The extent to which natural capital can be substituted with physical or human capital in production is a key determinant of the possibility of long-run sustainable economic development. We review the empirical literature that assesses the degree of substitutability between natural capital and other forms of capital. We find that most available substitutability estimates do not stand up to careful econometric scrutiny. Moreover, accurate substitutability estimates are even more difficult to produce for unpriced or mispriced resources, despite the availability of recently developed econometric methods. Finally, we provide evidence from industrial energy use, and agricultural land use, that suggests substitutability of natural capital with other forms of capital may be low to moderate.

Alex Teytelboym Fran├žois Cohen Cameron Hepburn

Economics of Sustainability

No. 2018-12 - Is Natural Capital Really Substitutable?

Type: inet-working-paper

Cohen, F., Hepburn, C. & Teytelboym, A. (2019). 'Is Natural Capital Really Substitutable?'. INET Oxford Working Paper No. 2018-12.

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