The Green Peace Dividend: The Effects of Militarisation 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 0.9–2% rise in total emissions, as well as a 1% rise in emission intensity, depending on the economy’s overall 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 0.25% and 1.38%, and emission intensity by between 0.12% and 1.06%. The empirical analysis tentatively suggests that green patenting may be reduced by 10–25% following such a shock, and the model suggests that investment in renewables could be crowded out by defence spending under certain circumstances, hindering the energy transition. I show in a directed technical change model that crowding out green innovation could result in the growth rate - not just the level - of emissions becoming higher. These effects can significantly raise climate damages. Depending on the social cost of carbon and the composition of a military spending shock, I estimate that permanently doubling the military spending share in the US in 2017 (equal to 3.3% of GDP) would have led to climate damages equivalent to between 0.05–1.81% of US GDP per year.