The first chapter derives an empirically testable set of propositions on the determinants of environmental aid as a non-market solution for trans-border pollution. The donor country balances environmental benefits against the social costs of aid which results from possible erosion of competitiveness in the export market. Using the panel data for environmental aid from OECD countries to China, it is shown that trade competition significantly reduces types of environmental aid that enhance the competitiveness of China. As the scope of environmental aid that improves China's energy efficiency is limited by trade competition, the change in composition of bilateral environmental aid may reflect a means by which a solution to the trans-border pollution issue can be found.

The second chapter shows that the dynamic properties of the pollution-income relationship under an optimal pollution tax depends on three key factors, namely the degree of temporal and inter-temporal flexibility in consumption and the elasticity of substitution among production inputs. This paper derives general conditions for eluding the limits to growth showing that they require rather stringent assumptions which the existing literature has failed to identify.

Finally, the third chapter examines environmentally sustainable growth with reference to climate change assuming two final outputs and two factors of production, accounting for both pollution flow and stock effects. If the elasticity of marginal utility of consumption is greater than one, an optimal pollution tax ensures sustainable growth without any further government intervention. Otherwise, either a high temporal elasticity of substitution in production or consumption is required for sustainability. Even a suboptimal pollution tax may allow sustainable development provided the tax time profile meets certain conditions that are developed and described in this paper.