Monday, August 26, 2013

The Environmental Kuznets Curve in 500 Words... Well, Almost

I was asked to write an article about the EKC in 500 words including references. This is my draft:

The environmental Kuznets curve (EKC) is a hypothesized inverted U-shape relationship between various environmental impact indicators and income per capita. In the early stages of economic growth environmental impacts and pollution increase, but beyond some level of income per capita economic growth leads to environmental improvement. The name comes from the similar relationship between income inequality and economic development called the Kuznets curve. Grossman and Krueger (1991) introduced the concept in an analysis of the potential effects of the North American Free Trade Agreement. The EKC also featured prominently in the 1992 World Bank World Development Report and has since become very popular in policy and academic circles. The EKC is seen as empirical confirmation of the interpretation of sustainable development as the idea that developing countries need to get richer in order to reduce environmental degradation.

However, the EKC is a controversial idea and the econometric evidence that is claimed to support it is not very robust (Stern, 2004). It is undoubtedly true that some dimensions of environmental quality have improved in developed countries as they have become richer. City air and rivers have become cleaner since the mid 20th Century and in some countries forests have expanded. But the overall human burden on the global environment has continued to increase and the contribution of developed countries to problems such as climate change has not been reduced. Carbon dioxide emissions have declined over recent decades in only a few European countries. Therefore, it does not seem to be generally true that economic growth eventually reduces environmental degradation. There is also evidence that emerging economies take action to reduce severe pollution (Stern, 2004). For example, Japan cut sulfur dioxide emissions in the early 1970s following a rapid increase in pollution when its income was still below that of the developed countries (Stern, 2005) and China has also acted to reduce sulfur emissions in recent years (Xu et al., 2009).

Alternatively, while the scale of economic activity increases environmental impacts, improvements in technology can reduce these impacts according to the famous IPAT identity (Impact = Population * Affluence * Technology). If improvements in technology occur across countries irrespective of their level of income, in developed countries, where economic growth is slow, impacts would decrease over time (Brock and Taylor, 2010) while rapid economic growth in emerging economies would overwhelm the rate at which technology improved resulting in increasing impacts. Thus the apparent EKC for some pollutants might be a result of slower economic growth at higher income levels rather than due to the increased income itself. Further research is needed to determine the separate roles of growth rates and income levels.

Brock, W. A. and M. S. Taylor (2010) The green Solow model, Journal of Economic Growth 15: 127–153.
Grossman, G. M. and A. B. Krueger (1991) Environmental impacts of a North American free trade agreement, National Bureau of Economic Research Working Paper 3914.
Stern D. I. (2004) The rise and fall of the environmental Kuznets curve, World Development 32(8): 1419-1439.
Stern D. I. (2005) Beyond the environmental Kuznets curve: Diffusion of sulfur-emissions-abating technology, Journal of Environment and Development 14(1): 101-124.
Xu, Y., R. H. Williams, and R. H. Socolow (2009) China’s rapid deployment of SO2 scrubbers, Energy and Environmental Science 2: 459-465.

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