Production Function as a Set of Discrete Options: Neoclassical, Net Zero, and Climate Neutrality

Dahlan, Rolan and Prayoga, Aan and Zulkarnain, Ismail and Yudha, Graha and Mushthofa, Eri and Nugraha, Alvin and Jannet, Zukhruf (2025): Production Function as a Set of Discrete Options: Neoclassical, Net Zero, and Climate Neutrality. Published in:

Abstract

This study examines the relationship between the neoclassical, net-zero, and climate neutrality perspectives, an area that has received limited attention in formal economic analysis. Adopting the concept of factor substitution, we model the production function as a set of discrete, substitutable options to explore the properties and interactions of these three perspectives. The findings demonstrate that each perspective yields a non-empty subset of solution options. Climate neutrality solutions are situated between neoclassical and net-zero solutions, exhibit discrete convexity, and are influenced by the level of GHG credit costs. Lower GHG credit costs tend to favour neoclassical solutions, while higher costs shift preference toward net-zero solutions. This highlights the importance of GHG credit pricing in guiding the transition to a low-emissions economy. Moreover, the framework enables the categorization of new climate mitigation options based on their effects, whether they are irrelevant, complementary, or disruptive. Overall, the proposed model provides an alternative formal approach that enhances the economic analysis of climate change mitigation strategies.

• Item Type: MPRA Paper
• Language: English
• Keywords: neoclassical, net zero, climate neutrality, substitution, production function
• Subjects: D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q56 - Environment and Development ; Environment and Trade ; Sustainability ; Environmental Accounts and Accounting ; Environmental Equity ; Population Growth

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