The Green Peace Dividend: the Effects of Militarization on Emissions and the Green Transition

Abstract

This paper argues that military buildups lead to a significant rise in greenhouse gas emissions and can disrupt the green transition. Identifying military spending shocks, I use local projections to show that a percentage point rise in the military spending share leads to a 1-1.5% rise in total emissions, as well as a 1% rise in emission intensity. Using a dynamic production network model calibrated for the US, I find that a permanent shock of the same size would increase total emissions by between 0.36% and 1.81%, and emission intensity by between 0.22% and 1.5%. The model indicates that fossil fuel and energy-intensive firms experience a considerable expansion in response to such a shock, which could create political obstacles for the green transition. Similarly, investment in renewables and green R&D could be crowded out by defence spending, further hindering the energy transition. Policymakers can use carbon prices or green subsidies to counteract these effects, the latter likely being more efficient due to political and social constraints.