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 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 0.36% and 1.81%, and emission intensity by between 0.22% and 1.5%. The empirical analysis indicates that green patenting is 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. These effects can significantly raise climate damages and temperatures. Depending on the social cost of carbon and the composition of a military spending shock, I estimate that 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 0.07-2.6% of GDP per year.