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Environmental Economics: Basic Concepts and Debates
(Released April 2007)

 
  by Ethan Goffman  

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Growth and the Environmental Kuznets Curve

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The Kuznets curve represents the theory that economic inequality increases as a country develops industry, then begins to decrease as an economy approaches maturity. A variant on this idea is the environmental Kuznets curve (EKC) , which holds that as countries develop they generate large amounts of pollution, but this shrinks as they approach economic maturity.

inverted U curve

This occurs "because at low incomes people tend to value development over environmental quality, but as they achieve greater wealth they are willing to devote greater resources to environmental quality improvements" (Field & Field 12). As Conly puts it, "One way to think about this is that clean air, water, etc. provide an enjoyment that is income elastic. So as income increases above a threshold individuals and society will want to spend a larger share of their incomes on these goods, reducing the pollution per unit of output and perhaps even total pollution." In addition, developing countries tend toward highly polluting heavy industry, while developed economies rely on relatively clean advanced technology as well as service-sector businesses. The EKC, however, is a contested notion, particularly by ecological economists, who believe that good environmental stewardship is possible at different levels of development.

Studies done on this are complex and contradictory, and the relevance of the Environmental Kuznet curve seems to vary according to situation. Theodore Panayotou argues that much depends upon whether pollutants are local-whether polluters are essentially fouling their own nests-or are externalities paid for by those far away, polluting a larger commons:

In the case of pollutants such as SO2 and particulates, where the damage is more evident to consumers and, hence, pollution prices are near their marginal social costs, turning points have been obtained at relatively low-income levels. In contrast, turning points are found at much higher income levels, or not at all for pollutants such as CO2, from which damage is less immediate and less evident to the consumers (8).
Panayotou qualifies his support of the EKC, believing that transfer of technology plus good policy can minimize environmental impact at differing levels of development.

David I. Stern, writing for the International Society for Ecological Economics, attacks the very idea of the EKC. His analysis shows that countries rich and poor tend to reduce pollution relative to economic output over time, but that since developing countries grow at a rapid rate their overall pollution grows rapidly: "in rapidly growing middle income countries the scale effect, which increases pollution and other degradation, overwhelms the time effect. In wealthy countries, growth is slower, and pollution reduction efforts can overcome the scale effect" (3). In other words a fast-growing economy will produce more pollution despite technological advances. A more recent study, using other methods, finds evidence that the Environmental Kuznets curve does in fact exist, while stipulating that it "still remains a very fragile concept" (Galeotti et al. 16). Another current study, of Latin American countries, shows "significant evidence of an EKC relationship for deforestation" (Culus 429), a result consistent with the theory that highly visible local conditions are most susceptible to the EKC. Still, the study cautions that "environmental policies and institutional arrangements" also need to be accounted for (436).

Scale, specific situation, and type of environmental degradation are some of the variables that must be carefully examined when evaluating the EKC. Still it's clear that, particularly in countries such as China and India, where growth is far outpacing improved environmental efficiency, simply allowing development to take its course is insufficient.

Go To The Kyoto Treaty & Environmental Economics

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