Environmental Economics

Environmental Kuznets Curve Econ 328

Dr. Itziar Lazkano

Sustainable Development Definition

Definition Development that meets the needs of the present without compromising the ability of future generations to meet their own needs

Source: The World Commission on Environment and Development. The Brundtland Commission report “Our Common Future,” 1987.

Sustainable Development Challenges

There are four causes of unsustainable economic growth:

1. Natural capital stock (environment and resources)

2. Population growth

3. Poverty and inequality

4. Institutions

Sustainable Development Definition

What does sustainable development mean in economic terms?

I Continuous economic progress

I Natural capital stock should not decrease over time

Economic growth and environmental quality The trade-off

Pessimistic view:

I There is a trade-off between economic growth and environmental quality

I The current generation must stop growing to ensure the well being of future generations

Evidence

I There are serious environmental dangers associated with economic growth

I Depletion of exhaustible energy resources I Such as coal and oil

I Deterioration of the environment I Through such as CO2 emissions and other greenhouse gases

I Many examples illustrate the negative effect of economic growth on environmental quality

I Pollution in Mexico city, Tehran, London during industrialization

Environmental quality could improve with wealth

Some people, however, argue that environmental degradation is only temporary

Environmental Kuznets Curve Environmental quality improves with wealth

Recent research finds EKC for certain pollutants:

I Local pollutants (SO2): evidence I As we become richer, we take care of our local environment

I Global pollutants (CO2): no evidence I Taking care of our local environment, does not guarantee

better global environment

Technological progress Optimistic view

The largest criticisms of the Club of Rome is that technological progress was not taken into account

I New growth theories can reconcile economic growth with environmental constraints

I New growth theory is based on innovations and directed technical change

Environmental Kuznets Curve

1. What drives sustained growth in income per capita?

2. Is sustained economic growth possible without environmental degradation?

Sulfur dioxide

1. Is there an Environmental Kuznets Curve for sulfur dioxide in the US? Why? Why not?

Figure 4 and 5, SOX may have linear negative or “inverse-N” relationship with per

capita GDP and logarithmic per capita GDP.

Figure 2-5: Scatter plots of CO2, SOX and GDP

Combined with the qualitative analysis above, this paper uses Selden and Song's (1994)

cubic logarithmic polynomial form to establish the following model:

𝑙𝑛𝑌 = 𝛽0 + 𝛽1𝑙𝑛𝑋 + 𝛽2𝑙𝑛 2𝑋 + 𝛽3𝑙𝑛

3𝑋 + 𝜀

Y is the amount of yearly air pollution (CO2 and SOX), X is per capita GDP, 𝜀 is error

term. The regression of CO2 is divided into two periods, the first period is from 1970

to 1983, per capita GDP ranges from 5246 to 15526 dollars, and the second period is

from 1984 to 2014, per capita GDP ranges from 17093 to 54484 dollars.

When 𝛽1 = 𝛽2 = 𝛽3 = 0 , environment and economy do not have significant

relationship. When 𝛽1 ≠ 0, 𝛽2 = 𝛽3 = 0 , only the linear term influences the

dependent variable, so environment and economy have linear relationship. When 𝛽1 >

0, 𝛽2 < 0, 𝛽3 = 0, the model first is an incremental convex function until the turning

4000

4500

5000

5500

6000

0 20000 40000 60000

C O

2

GDP/capita

8.3

8.4

8.5

8.6

8.7

8.5 9 9.5 10 10.5 11 11.5

ln (C

O 2 )

ln(GDP/capita)

0

5000

10000

15000

20000

25000

20000 30000 40000 50000 60000

S O

X

GDP/capita

8

8.5

9

9.5

10

10.5

10 10.2 10.4 10.6 10.8 11

ln (S

O X

)

ln(GDP/capita)

Figure: Scatterplot GDP per capita and sulfur emissions in the US from 1990 to 2014.

Carbon dioxide

1. Is there an Environmental Kuznets Curve for carbon dioxide in the US? Why? Why not?

Figure 4 and 5, SOX may have linear negative or “inverse-N” relationship with per

capita GDP and logarithmic per capita GDP.

Figure 2-5: Scatter plots of CO2, SOX and GDP

Combined with the qualitative analysis above, this paper uses Selden and Song's (1994)

cubic logarithmic polynomial form to establish the following model:

𝑙𝑛𝑌 = 𝛽0 + 𝛽1𝑙𝑛𝑋 + 𝛽2𝑙𝑛 2𝑋 + 𝛽3𝑙𝑛

3𝑋 + 𝜀

Y is the amount of yearly air pollution (CO2 and SOX), X is per capita GDP, 𝜀 is error

term. The regression of CO2 is divided into two periods, the first period is from 1970

to 1983, per capita GDP ranges from 5246 to 15526 dollars, and the second period is

from 1984 to 2014, per capita GDP ranges from 17093 to 54484 dollars.

When 𝛽1 = 𝛽2 = 𝛽3 = 0 , environment and economy do not have significant

relationship. When 𝛽1 ≠ 0, 𝛽2 = 𝛽3 = 0 , only the linear term influences the

dependent variable, so environment and economy have linear relationship. When 𝛽1 >

0, 𝛽2 < 0, 𝛽3 = 0, the model first is an incremental convex function until the turning

4000

4500

5000

5500

6000

0 20000 40000 60000

C O

2

GDP/capita

8.3

8.4

8.5

8.6

8.7

8.5 9 9.5 10 10.5 11 11.5

ln (C

O 2

)

ln(GDP/capita)

0

5000

10000

15000

20000

25000

20000 30000 40000 50000 60000

S O

X

GDP/capita

8

8.5

9

9.5

10

10.5

10 10.2 10.4 10.6 10.8 11

ln (S

O X

) ln(GDP/capita)

Figure: Scatterplot GDP per capita and carbon emissions in the US from 1990 to 2014.