We present a basic exogenous growth model with two consumption goods that

differ as regards their contributions to environmental pollution. Allowing for habit

formation of the polluting good, we show under which conditions habit formation

raises the consumption of the clean good relative to the dirty one in the compet-

itive economy. Further, we demonstrate when habit formation generates a lower

steady-state pollution stock compared to the situation without habits. Finally, we

determine the Pigou tax rates and we illustrate that the social optimum may imply

a higher steady-state pollution than the competitive economy if the habit formation

is sufficiently strong.