Should economics drive environmental policy? Long-term climate policy is often based on models that predict emissions scenarios by taking into account underlying assumptions, which vary with income, technology and population. Since 1993, when economists first reported a systematic relationship between income changes and environmental quality, the Environmental Kuznets Curve (EKC) became standard fare in technical conversations regarding environmental policy. The EKC is based on empirical evidence showing that some measures of environmental quality deteriorate with economic growth at low levels of per capita income and then improve with economic growth at higher levels of income. By measuring certain pollutants against GDP per capita, an inverted "U" shape emerges with peak pollution levels somewhere in the range of middle-income countries.
Some theories have suggested that the inverted "U" follows the genre of societal change-from agricultural, through crude industrialism, and finally refined industrial and service based economies-by reflecting both pollution and income levels associated with an evolving culture. It has been suggested that as certain societies move to another phase, pollution is managed both through technological advancements, while at the same time being transferred to "pollution-havens" located in less developed countries through international trade. Regardless, the conceptual simplicity of the EKC model is tempting and entices many policy makers to accept the theory, disregarding the validity of the models and the underlying assumptions that make-up the backbone of the analyses. This leads many to believe that the formula for environmental protection is to first economically advance a society and then worry about pollution reduction-i.e. the fatal flaw of the Kyoto Protocol.
Since the early 1990s, hundreds of studies have been completed analyzing the validity, economic and environmental impacts of the EKC theory. Some of these findings agree with the EKC, while others do not. Stern (2003) argued that the EKC is more time and technology dependent than income dependent, while Vincent (1997) focusing specifically on Malaysia, found very different results than those suggested by the inverted U. In addition, Aldy (2005) found that in the U.S., even among the 48 contiguous states, the EKC income-pollution relationships differ significantly.
The Latest on the EKC
A recent study by Fonkych and Lempert (2005) concurred with the wide variation of EKC output based on varying socio-economic scenarios. Using data from the Special Report on Emissions Scenarios (SRES) issued by the Intergovernmental Panel on Climate Change (IPCC), Fonkych and Lempert (2005) have shown that the most costly turning points (income peaks at which pollution levels begin to decrease) are associated with scenarios having: (1) a prevalence for fossil fuel energy sources, (2) an increasing global population, (3) fragmented technological progress and (4) a self-reliant heterogeneous world. The most favorable models suggest lower-cost turning points occurring in countries having: (1) slower growth and less material-intensive economies and (2) a focus on increased regional cooperation and environmental sustainability. Lower-cost models also included variables such as alternative energy and increased social development.
The data suggest that greater focus on sustainable outcomes and social development at every income level is consistent with reduced pollution. Furthermore, a continued transition toward energy efficiency and alternative sources is relevant in reducing long-term emissions at lower income levels. Under this assumption, pollution reduction is most economically achieved by simultaneously developing the economics, environment and social programs of a society.
These findings are substantial for devising long-term policy. However, no amount of data signifying the long-term economic benefits of environmentally sustainable planning will suffice unless the legitimacy of global warming, and the ability of human intervention to contradict the problem is recognized by those having decision-making power. IH