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Abstract
The standard theoretical literature has shown that environmental sustainability and
positive economic growth are not incompatible as long as environmental policies are optimal.
However, in showing this result earlier studies have relied on strong assumptions that may
appear to charge the dice in favor of such result. Here we show that once the role of the
consumption composition effect is recognized, environmentally sustainable economic growth
may exist even if some of the most questionable assumptions used by the canonical models are
relaxed. In particular, we show that sustainable growth is possible even if environmental and
man-made factors of production are complement rather than highly substitutable as has been
invariably assumed by the literature and even if technological change is entirely pollution-augmenting.