67-2011 - EEESD11 - EKC - Plenary - Lecture

Plenary Lecture Plenary Lecture
The Relationship between The Relationship between

Economic Growth and Economic Growth and Economic Growth and Economic Growth and
Environmental Degradation Environmental Degradation Environmental Degradation Environmental Degradation
((Environmental Kuznets Curve Environmental Kuznets Curve) )
Dimitra Kaika and Efthimios Zervas* Dimitra Kaika and Efthimios Zervas*
Hellenic Open University Hellenic Open University
Plenary Lecture: Environmental Kuznets Curve EEESD 11, Angers, France, 17-19/11/2011
1.Introduction 1.Introduction
F th l 1990 i b t l F th l 1990 i b t l From the early 1990s, serious concerns about several From the early 1990s, serious concerns about several
environmental problems (climate changes, emissions of environmental problems (climate changes, emissions of
industrial production air quality generation of wastes ) have industrial production air quality generation of wastes ) have industrial production, air quality, generation of wastes) have industrial production, air quality, generation of wastes) have
been deployed. been deployed.
Such concerns lead to a rise of the relative literature about the Such concerns lead to a rise of the relative literature about the
possible relationship between the pollution and the national income possible relationship between the pollution and the national income
level (PIR, pollution level (PIR, pollution- -income relationship). income relationship).
According to the literature that relationship may take several According to the literature that relationship may take several According to the literature, that relationship may take several According to the literature, that relationship may take several
forms, from which the most widely supported is the forms, from which the most widely supported is the
Environmental Kuznets Curve (EKC). Environmental Kuznets Curve (EKC). ( ) ( )
The EKC relationship took its name from the theory of Simon Kuznets The EKC relationship took its name from the theory of Simon Kuznets
about the relationship between income inequality about the relationship between income inequality economic growth. economic growth.
The EKC literature inverts the basic concern about the The EKC literature inverts the basic concern about the
exhaustion of resources and the limits of economic growth to exhaustion of resources and the limits of economic growth to
concerns about the evolution of pollution as a consequence of concerns about the evolution of pollution as a consequence of concerns about the evolution of pollution as a consequence of concerns about the evolution of pollution as a consequence of
economic growth. economic growth.
Th hi t i t iti f d l ti i t th Th hi t i t iti f d l ti i t th
1972 Th Li it t G th 1972 Th Li it t G th
The historic transition from resource depletion issues to the The historic transition from resource depletion issues to the
EKC concept (1970 EKC concept (1970- -1990) 1990)
1972: The Limits to Growth 1972: The Limits to Growth
Future world will collapse. World economy will reach its physical Future world will collapse. World economy will reach its physical
limits in terms of non limits in terms of non--renewable resources, agricultural production renewable resources, agricultural production , g p , g p
and excessive pollution. and excessive pollution.
1972: First UN Conference on Environment (Stockholm) 1972: First UN Conference on Environment (Stockholm) 1972: First UN Conference on Environment (Stockholm) 1972: First UN Conference on Environment (Stockholm)
Evolvement of the sustainability concept. Evolvement of the sustainability concept.
1983, 1983, Brundltand Brundltand report, definition of sustainability: meet the needs of report, definition of sustainability: meet the needs of
the present without compromising the ability of future generations to the present without compromising the ability of future generations to the present without compromising the ability of future generations to the present without compromising the ability of future generations to
meet their own needs. meet their own needs.
1970s: Oil crises (1973 and 1979) 1970s: Oil crises (1973 and 1979) ( ) ( )
The world is entering a future of increasing scarcity of energy use The world is entering a future of increasing scarcity of energy use
and of natural resources. and of natural resources.
Th hi t i t iti f d l ti i t th Th hi t i t iti f d l ti i t th
1970s 1970s 1980s: The Debate on substitution possibilities 1980s: The Debate on substitution possibilities
The historic transition from resource depletion issues to the The historic transition from resource depletion issues to the
EKC concept (1970 EKC concept (1970- -1990) 1990)
1970s 1970s 1980s: The Debate on substitution possibilities 1980s: The Debate on substitution possibilities
Two theoretical trends regarding the substitution possibilities of non Two theoretical trends regarding the substitution possibilities of non--
renewable resources and of sustainability appear renewable resources and of sustainability appear y pp y pp
Neoclassical economists Neoclassical economists
Ecological economists Ecological economists
Sustainability is technical Sustainability is technical
feasible due to substitution feasible due to substitution
(human (human- -made capital or made capital or
th b d t b tit t ) th b d t b tit t )
Ecological economists Ecological economists
Substitution possibilities are Substitution possibilities are
restricted by physical laws restricted by physical laws
(the environment can restrict (the environment can restrict
i th) i th) other abundant substitutes) other abundant substitutes) economic growth) economic growth)
1992: World Development Report by World Bank 1992: World Development Report by World Bank
Too poor to be green Too poor to be green Too poor to be green. Too poor to be green.
Economic growth is needed to protect the environment. Economic growth is needed to protect the environment.
Exhaustion of resources is no longer the main issue. Exhaustion of resources is no longer the main issue. gg
Beginning of the EKC concept. Beginning of the EKC concept.
2. The EKC concept 2. The EKC concept
An Environmental Kuznets Curve An Environmental Kuznets Curve
Abundance of natural Abundance of natural
resource stock and a resource stock and a
As industrialization takes As industrialization takes
off, resource depletion and off, resource depletion and
The production process The production process
becomes more becomes more
limited generation of limited generation of
wastes because of wastes because of
limited economic activity. limited economic activity.
waste generation waste generation
accelerate. Positive accelerate. Positive
relationship of economic relationship of economic
growth and environmental growth and environmental
information based and the information based and the
service sector is boosted service sector is boosted
leading to a decline of leading to a decline of
environmental environmental growth and environmental growth and environmental
degradation. degradation.
environmental environmental
degradation degradation..
2. The EKC concept 2. The EKC concept
Th EKC h th i i t t d i i ll i th f ll i d d Th EKC h th i i t t d i i ll i th f ll i d d ff

3 2
The EKC hypothesis is tested empirically using the following reduced The EKC hypothesis is tested empirically using the following reduced--form form
model: model:
it it it it it i it
e z x x x a y + + + + + =
4
3
3
2
2 1
Where Where::
(1)
yy= = indicator of environmental indicator of environmental
degradation degradation
xx== income per capita income per capita
i i= = countries countries 1 1 of the sample of the sample
tt= = 1 1 years years
== constant term constant term
xx income per capita income per capita
zz= = other parameters that may other parameters that may
influence y influence y
== constant term constant term
== coefficients to estimate coefficients to estimate
ee= = error term error term
Only if Only if
11
>0, >0,
22
<0 <0 and and
33
=0 =0 an EKC pattern exists. an EKC pattern exists.
Time series Time series--cross sectional data (TSCS) or panel data are mainly cross sectional data (TSCS) or panel data are mainly
used, while some studies use only time series data. used, while some studies use only time series data.
3. Indicators of environmental degradation 3. Indicators of environmental degradation
Air pollution Air pollution
Carbon dioxide (CO Carbon dioxide (CO ) sulfur dioxide (SO ) sulfur dioxide (SO ) suspended ) suspended Carbon dioxide (CO Carbon dioxide (CO
22
). sulfur dioxide (SO ). sulfur dioxide (SO
22
), suspended ), suspended
particulate matter (SPM), oxides of nitrogen (NO particulate matter (SPM), oxides of nitrogen (NO
XX
), carbon ), carbon
monoxide, lead, volatile organic compounds (VOC), monoxide, lead, volatile organic compounds (VOC),
Water pollution Water pollution
Fecal (FCOL) and total Fecal (FCOL) and total coliforms coliforms (TCOL), heavy metals (lead, (TCOL), heavy metals (lead,
cadmium, mercury, arsenic, nickel), dissolved oxygen (DO), cadmium, mercury, arsenic, nickel), dissolved oxygen (DO),
biological and chemical oxygen demand (BOD, COD), biological and chemical oxygen demand (BOD, COD),
nitrates nitrates nitrates, nitrates,
Other environmental indicators Other environmental indicators
Municipal solid wastes urban sanitation access to safe drinking Municipal solid wastes urban sanitation access to safe drinking Municipal solid wastes, urban sanitation, access to safe drinking Municipal solid wastes, urban sanitation, access to safe drinking
water, rate of deforestation, water, rate of deforestation,
4. The first empirical studies of the EKC 4. The first empirical studies of the EKC
1992 1992 -- Shafic Shafic and and Bondyopadhay Bondyopadhay
Ten environmental indicators. Ten environmental indicators.
Income has the most consistently significant effect on all indicators Income has the most consistently significant effect on all indicators Income has the most consistently significant effect on all indicators. Income has the most consistently significant effect on all indicators.
Most indicators deteriorate initially but tend to improve as countries Most indicators deteriorate initially but tend to improve as countries
become richer. become richer.
E ti di l d i i l t b i i E ti di l d i i l t b i i Exceptions: dissolved oxygen, municipal wastes, carbon emissions. Exceptions: dissolved oxygen, municipal wastes, carbon emissions.
1991, 1995 1991, 1995 -- Grossman and Krueger Grossman and Krueger
Many indicators of air and water quality, natures beauty, Many indicators of air and water quality, natures beauty, Many indicators of air and water quality, nature s beauty, Many indicators of air and water quality, nature s beauty,
For most indicators, economic growth brings an initial phase of For most indicators, economic growth brings an initial phase of
deterioration followed by a phase of improvement. deterioration followed by a phase of improvement.
These results reflect specific technological political and economic These results reflect specific technological political and economic These results reflect specific technological, political and economic These results reflect specific technological, political and economic
conditions of the given time. conditions of the given time.
1994 1994 -- Selden and Song Selden and Song
Four air pollutants. Four air pollutants.
An inverted An inverted--U relationship is confirmed but the turning point is out of U relationship is confirmed but the turning point is out of
the data range. the data range. gg
Forecasts: increasing emissions Forecasts: increasing emissions
5. Possible causes of an EKC pattern 5. Possible causes of an EKC pattern
The EKC literature examines many factors as possible The EKC literature examines many factors as possible
causes leading to an EKC causes leading to an EKC--pattern: pattern:
1. 1. International trade and the pollution haven hypothesis International trade and the pollution haven hypothesis
2. 2. Income distribution Income distribution
3. 3. Structural changes and technical progress Structural changes and technical progress
4. 4. Energy issues (mix, price, dependence) Energy issues (mix, price, dependence)
5. 5. Regulation, institutional conditions Regulation, institutional conditions
66 Consumption consumer preferences Consumption consumer preferences 6. 6.Consumption, consumer preferences Consumption, consumer preferences
5 1 International trade and PHH 5 1 International trade and PHH 5.1. International trade and PHH 5.1. International trade and PHH
An EKC pattern is the result of imports and exports of goods An EKC pattern is the result of imports and exports of goods
b t t i b t t i between countries. between countries.
Developed countries are oriented towards the service sector and Developed countries are oriented towards the service sector and
high tech industries while developing countries are characterized high tech industries while developing countries are characterized high tech industries while developing countries are characterized high tech industries while developing countries are characterized
by highly polluting industries. by highly polluting industries.
In fact developed countries move their pollution In fact developed countries move their pollution intensive intensive In fact, developed countries move their pollution In fact, developed countries move their pollution--intensive intensive
production to developing countries and they receive back their production to developing countries and they receive back their
products through imports. products through imports. p g p p g p
Pollution Haven Hypothesis (PHH) Pollution Haven Hypothesis (PHH)
Exports of goods from industrialized countries generate the upward Exports of goods from industrialized countries generate the upward Exports of goods from industrialized countries generate the upward Exports of goods from industrialized countries generate the upward
slope of the EKC while the imports from industrialized countries slope of the EKC while the imports from industrialized countries
contribute to the downward slope of the EKC. contribute to the downward slope of the EKC.
5 1 International trade and PHH 5 1 International trade and PHH 5.1. International trade and PHH 5.1. International trade and PHH
Many studies have attempted to test the influence of trade and Many studies have attempted to test the influence of trade and
h th t h th t show that: show that:
Industrialization process in developing countries is based usually Industrialization process in developing countries is based usually
on highly polluting industries on highly polluting industries on highly polluting industries. on highly polluting industries.
Developing countries account for an increasing part of the most Developing countries account for an increasing part of the most
highly polluting industries. highly polluting industries.
Limitations Limitations
The PHH can explain an EKC for developed countries but The PHH can explain an EKC for developed countries but
developing countries are not expected to follow the same pattern developing countries are not expected to follow the same pattern
in the future. There wont be any pollution havens. in the future. There wont be any pollution havens.
Th PHH k d id i l h d i id d Th PHH k d id i l h d i id d The PHH takes under consideration only the production side and The PHH takes under consideration only the production side and
ignores the consumption side. ignores the consumption side.
5 2 Equitable Income Distribution 5 2 Equitable Income Distribution 5.2. Equitable Income Distribution 5.2. Equitable Income Distribution
An EKC pattern appears in high An EKC pattern appears in high--income countries if the process income countries if the process
f i th d t l d t i ifi t i f f i th d t l d t i ifi t i f of economic growth does not lead to a significant increase of of economic growth does not lead to a significant increase of
income inequality. income inequality.
Peoples perception on environmental issues depends on their Peoples perception on environmental issues depends on their People s perception on environmental issues depends on their People s perception on environmental issues depends on their
relative position in the income distribution. relative position in the income distribution.
Comparison of the relative power between those who benefit Comparison of the relative power between those who benefit p p p p
from pollution and those who suffer from pollution. from pollution and those who suffer from pollution.
Depending on the gap of those powers, pollution is increased or Depending on the gap of those powers, pollution is increased or
d d d d decreased. decreased.
Demand for environmental quality may be determined by Demand for environmental quality may be determined by
income distribution education and information accessibility income distribution education and information accessibility income distribution, education and information accessibility. income distribution, education and information accessibility.
Poor quality data to test whether income inequality affects Poor quality data to test whether income inequality affects Poor quality data to test whether income inequality affects Poor quality data to test whether income inequality affects
environmental degradation. environmental degradation.
5 3 Structural Change and Technical Progress 5 3 Structural Change and Technical Progress 5.3. Structural Change and Technical Progress 5.3. Structural Change and Technical Progress
Structural changes Structural changes is the transition from the industry sector to is the transition from the industry sector to
the more information based service sector in the productive the more information based service sector in the productive the more information based service sector in the productive the more information based service sector in the productive
process of an economy (composition effect process of an economy (composition effect -- CE). CE).
Technological progress Technological progress is any improvement of the production is any improvement of the production Technological progress Technological progress is any improvement of the production is any improvement of the production
techniques in the production process (technique effect techniques in the production process (technique effect --TE). TE).
Composition and technique effect refer to the production side. Composition and technique effect refer to the production side.
Many studies show that the improvement of some Many studies show that the improvement of some
environmental indicators was due to structural changes and environmental indicators was due to structural changes and
t h l i l d t di tl d t i t h l i l d t di tl d t i technological progress and not directly due to income technological progress and not directly due to income
accumulation. accumulation.
However according to other studies CE and TE may have a However according to other studies CE and TE may have a However, according to other studies, CE and TE may have a However, according to other studies, CE and TE may have a
transient influence on the EKC. transient influence on the EKC.
Importance of the oil crises: changes due to technology of Importance of the oil crises: changes due to technology of Importance of the oil crises: changes due to technology of Importance of the oil crises: changes due to technology of
energy use. energy use.
5 3 Structural Change and Technical Progress 5 3 Structural Change and Technical Progress 5.3. Structural Change and Technical Progress 5.3. Structural Change and Technical Progress
Recently, it is supported that an EKC may envelop subsequent Recently, it is supported that an EKC may envelop subsequent
EKCs which correspond to different subsequent techniques. EKCs which correspond to different subsequent techniques.
This happens because new technology replaces old technology. This happens because new technology replaces old technology.
Whether a new technology is about to be adopted is Whether a new technology is about to be adopted is Whether a new technology is about to be adopted, is Whether a new technology is about to be adopted, is
determined by market forces and mechanisms. determined by market forces and mechanisms.
Structural Changes and Technical Progress refer only to the Structural Changes and Technical Progress refer only to the Structural Changes and Technical Progress refer only to the Structural Changes and Technical Progress refer only to the
production side. production side.
Market incentives and policy regulations must be taken into Market incentives and policy regulations must be taken into p y g p y g
consideration. consideration.
5 4 Energy issues 5 4 Energy issues 5.4. Energy issues 5.4. Energy issues
Few studies attempted to study the implication of energy issues Few studies attempted to study the implication of energy issues
to the EKC concept. to the EKC concept. to the EKC concept. to the EKC concept.
Energy is a necessary factor of economic activity for production Energy is a necessary factor of economic activity for production
and consumption. and consumption.
Energy issues include energy prices, energy mix, energy Energy issues include energy prices, energy mix, energy
dependence dependence
E i i th EKC lit t id d E i i th EKC lit t id d Energy issues in the EKC literature are considered as: Energy issues in the EKC literature are considered as:
Energy consumption as depended variable Energy consumption as depended variable
Energy parameters as independent explanatory variables Energy parameters as independent explanatory variables gy p p p y gy p p p y
Energy prices Energy prices
Results indicate that energy prices affects energy demand and Results indicate that energy prices affects energy demand and
consequently carbon dioxide emissions. consequently carbon dioxide emissions.
Fuel mix Fuel mix Fuel mix Fuel mix
Inclusion of fuel mix is of great significance. Inclusion of fuel mix is of great significance.
5 4 Energy issues 5 4 Energy issues 5.4. Energy issues 5.4. Energy issues
Energy dependence Energy dependence
Energy dependent economies are more vulnerable to energy Energy dependent economies are more vulnerable to energy Energy dependent economies are more vulnerable to energy Energy dependent economies are more vulnerable to energy
shocks. shocks.
A policy to reduce energy consumption in order to reduce A policy to reduce energy consumption in order to reduce
i i i lik l t h t i t th GDP f th i i i lik l t h t i t th GDP f th emissions is likely to have a greater impact on the GDP of the emissions is likely to have a greater impact on the GDP of the
developed rather the developing world. developed rather the developing world.
Some studies show that energy use per unit of economic Some studies show that energy use per unit of economic
activity has declined due to a shift from direct use of fossil fuels activity has declined due to a shift from direct use of fossil fuels
to the use of higher quality energy (electricity). But energy use to the use of higher quality energy (electricity). But energy use
and economic activity are tightly coupled. and economic activity are tightly coupled.
If energy issues are taken into consideration an EKC pattern If energy issues are taken into consideration an EKC pattern If energy issues are taken into consideration, an EKC pattern If energy issues are taken into consideration, an EKC pattern
may not appear at all, even if energy use is close related to may not appear at all, even if energy use is close related to
economic activity. economic activity. yy
Energy has been scarcely examined in the EKC debate. Energy has been scarcely examined in the EKC debate.
5 5 Regulations Institutional conditions 5 5 Regulations Institutional conditions 5.5. Regulations, Institutional conditions 5.5. Regulations, Institutional conditions
Regulations/directives are necessary to regulate market failures Regulations/directives are necessary to regulate market failures
which raise environmental degradation. which raise environmental degradation.
Environmental regulations may be imposed in an economy as a Environmental regulations may be imposed in an economy as a
result of the rising public awareness for environmental result of the rising public awareness for environmental result of the rising public awareness for environmental result of the rising public awareness for environmental
degradation. degradation.
For long For long--termed pollutants short termed pollutants short--lived governments may avoid lived governments may avoid For long For long termed pollutants, short termed pollutants, short lived governments may avoid lived governments may avoid
enacting environmental regulations due to political cost. enacting environmental regulations due to political cost.
Corruption Corruption pp
Governments are supposed to respond and adjust to consumers Governments are supposed to respond and adjust to consumers
changing preferences for the environment. changing preferences for the environment.
If government institutions are weaker less effective or generally If government institutions are weaker less effective or generally If government institutions are weaker, less effective or generally If government institutions are weaker, less effective or generally
more corrupted as are in developing countries compared to more corrupted as are in developing countries compared to
developed, then a possible EKC has a peak at higher income levels, developed, then a possible EKC has a peak at higher income levels,
well above the social optimal income level. well above the social optimal income level.
5 5 Regulations Institutional conditions 5 5 Regulations Institutional conditions 5.5. Regulations, Institutional conditions 5.5. Regulations, Institutional conditions
Some studies shows that countries (mainly the developed) with Some studies shows that countries (mainly the developed) with
better governance, stronger political institutions, better better governance, stronger political institutions, better
socioeconomic conditions and greater investment in education socioeconomic conditions and greater investment in education
show lower CO show lower CO emissions levels over time (even if they did not emissions levels over time (even if they did not show lower CO show lower CO
22
emissions levels over time (even if they did not emissions levels over time (even if they did not
show an unambiguous decline of CO show an unambiguous decline of CO
22
emissions in total). emissions in total).
In general, the studies support that the agents willingness for In general, the studies support that the agents willingness for g , pp g g g , pp g g
improving environmental damage will not be taken into account improving environmental damage will not be taken into account
from the governments, if the political system is highly corrupted from the governments, if the political system is highly corrupted
l ff ti l ff ti or less effective. or less effective.
Limitations Limitations Limitations Limitations
It is difficult to find suitable measures of political institutions It is difficult to find suitable measures of political institutions
effectiveness or ineffectiveness in order to estimate the effect of effectiveness or ineffectiveness in order to estimate the effect of effectiveness or ineffectiveness in order to estimate the effect of effectiveness or ineffectiveness in order to estimate the effect of
such socio such socio--political conditions to the environmental degradation. political conditions to the environmental degradation.
5 6 Consumption consumer preferences 5 6 Consumption consumer preferences 5.6. Consumption, consumer preferences 5.6. Consumption, consumer preferences
Some EKC studies focus on consumer preferences as a partial Some EKC studies focus on consumer preferences as a partial
explanation of an EKC explanation of an EKC explanation of an EKC. explanation of an EKC.
When income rises, we have to examine the change of When income rises, we have to examine the change of
environmental preferences of consumers ( environmental preferences of consumers ( -- elasticity of elasticity of
demand for environmental quality). demand for environmental quality).
If If | |||>1 >1 then clean environment is a luxury good. then clean environment is a luxury good.
If If ||||<<11 then clean environment is a normal good then clean environment is a normal good If If ||||<<11 then clean environment is a normal good. then clean environment is a normal good.
Spatial separation Spatial separation
Consumers can spatially separate themselves from the source of Consumers can spatially separate themselves from the source of
ll ti ll ti pollution. pollution.
Separation of production and consumption of the source of pollution. Separation of production and consumption of the source of pollution.
The studies show that a long time is necessary for an The studies show that a long time is necessary for an g y g y
environmental problem to be solved after its appearance. environmental problem to be solved after its appearance.
Hard to quantify the level of environmental preferences when Hard to quantify the level of environmental preferences when Hard to quantify the level of environmental preferences when Hard to quantify the level of environmental preferences when
income increases. income increases.
6. EKC for CO 6. EKC for CO
22
emissions emissions
Many studies attempt to study a possible EKC Many studies attempt to study a possible EKC--pattern for CO pattern for CO
22
emissions. emissions.
This is due to the great concern on climate changes This is due to the great concern on climate changes This is due to the great concern on climate changes. This is due to the great concern on climate changes.
Research became more intense during the first decade of 2000s Research became more intense during the first decade of 2000s..
The results show that an EKC relationship in the case of CO The results show that an EKC relationship in the case of CO
22
is is The results show that an EKC relationship in the case of CO The results show that an EKC relationship in the case of CO
22
is is
not sufficiently supported. not sufficiently supported.
The relationship is rather positive The relationship is rather positive--monotonic. monotonic.
This implies that economic growth is not expected to improve the This implies that economic growth is not expected to improve the
generation of CO generation of CO
22
Any sign of an EKC Any sign of an EKC pattern for CO pattern for CO is related only to the most is related only to the most Any sign of an EKC Any sign of an EKC--pattern for CO pattern for CO
2 2
is related only to the most is related only to the most
developed countries of today, or the most developed regions of today developed countries of today, or the most developed regions of today..
The monotonic relationship arises probably due to the use of The monotonic relationship arises probably due to the use of p p y p p y
energy. energy.
Economic growth leads to increasing use of energy which Economic growth leads to increasing use of energy which
consequently leads to higher emission of greenhouse gases consequently leads to higher emission of greenhouse gases consequently leads to higher emission of greenhouse gases. consequently leads to higher emission of greenhouse gases.
7. Critiques on the EKC literature 7. Critiques on the EKC literature
The EKC pattern has been tested extensively for several The EKC pattern has been tested extensively for several
pollutants or indicators of environmental degradation and for pollutants or indicators of environmental degradation and for
several countries or group of countries. several countries or group of countries.
Despite the significant amount of such studies, no clear result Despite the significant amount of such studies, no clear result
can be drown can be drown can be drown. can be drown.
There is not enough evidence to support or reject such There is not enough evidence to support or reject such
hypothesis. hypothesis. yp yp
However, the EKC concept seems to apply in certain cases of However, the EKC concept seems to apply in certain cases of
pollution (local pollution) and for certain regions (the most pollution (local pollution) and for certain regions (the most
developed). developed).
The EKC concept provides a sufficient base to examine the The EKC concept provides a sufficient base to examine the
pollution pollution income relationship (PIR) income relationship (PIR) pollution pollution--income relationship (PIR). income relationship (PIR).
As soon as the first empirical studies of the EKC appeared, the As soon as the first empirical studies of the EKC appeared, the
first critiques evolved. first critiques evolved. first critiques evolved. first critiques evolved.
The main critiques on the EKC literature focus on the following The main critiques on the EKC literature focus on the following
issues: issues:
1. 1. Equitable Income Distribution Equitable Income Distribution
2. 2. One model for all economies One model for all economies
SCS SCS Time series versus panel data and TSCS data Time series versus panel data and TSCS data
Service sector Service sector
33 Feedback from environmental degradation to economic Feedback from environmental degradation to economic 3. 3. Feedback from environmental degradation to economic Feedback from environmental degradation to economic
growth growth
4. 4. Type of pollutant (local vs global pollution) Type of pollutant (local vs global pollution) 4. 4. Type of pollutant (local vs global pollution) Type of pollutant (local vs global pollution)
5. 5. Type of economy (rich or poor) Type of economy (rich or poor)
6. 6. Econometric issues Econometric issues 6. 6. Econometric issues Econometric issues
7. 7. Consumption pattern Consumption pattern
8. 8. Income Distribution Kuznets theory vs Environmental Income Distribution Kuznets theory vs Environmental yy
Kuznets theory. Kuznets theory.
7 1 Income distribution 7 1 Income distribution 7.1. Income distribution 7.1. Income distribution
EKC studies assume implicitly that the world distribution of EKC studies assume implicitly that the world distribution of
i i l i i l income is normal. income is normal.
However, world income distribution is highly skewed with much However, world income distribution is highly skewed with much
larger number of people below world mean income than above it larger number of people below world mean income than above it larger number of people below world mean income than above it. larger number of people below world mean income than above it.
World distribution of World distribution of
income 1970 income 1970--2000 2000
S S l S S l ii M i X M i X Source: Sala Source: Sala--ii--Martin X., Martin X.,
2005 2005
7.2. One model for all economies 7.2. One model for all economies 7.2. One model for all economies 7.2. One model for all economies
-- Time series versus panel or TSCS data Time series versus panel or TSCS data
Most of the empirical EKC studies use panel data or Most of the empirical EKC studies use panel data or Most of the empirical EKC studies use panel data or Most of the empirical EKC studies use panel data or
combination of time series and cross sectional data and they combination of time series and cross sectional data and they
include data from many countries. include data from many countries.
ff This indicates a hidden assumption that all countries of the sample This indicates a hidden assumption that all countries of the sample
are homogenous and that they are expected to follow a common are homogenous and that they are expected to follow a common
EKC EKC--pattern. pattern.
Some studies have used strictly time series data on one single Some studies have used strictly time series data on one single
country for the most available time period. country for the most available time period.
Such studies show that there are differences between regions with Such studies show that there are differences between regions with Such studies show that there are differences between regions with Such studies show that there are differences between regions with
warmer climates and regions with colder climate. warmer climates and regions with colder climate.
Such studies indicate differences when the population density and Such studies indicate differences when the population density and
the existence of large urban areas are counted the existence of large urban areas are counted the existence of large urban areas are counted. the existence of large urban areas are counted.
In general, a total EKC pattern is doubtful when time series data In general, a total EKC pattern is doubtful when time series data
are used and different patterns appear depending on country's are used and different patterns appear depending on country's
characteristics and on the pollutant under consideration. characteristics and on the pollutant under consideration.
-- Service sector Service sector
Two basic assumptions of the EKC are: Two basic assumptions of the EKC are:
The transition from the industry sector to the services sector leads to an The transition from the industry sector to the services sector leads to an
EKC pattern. EKC pattern.
The service sector is less polluting since is more information based and The service sector is less polluting since is more information based and p g p g
uses less material uses less material..
However, the historical examination of the GDP of developed However, the historical examination of the GDP of developed
countries does not imply a gradual transition from industry to countries does not imply a gradual transition from industry to countries does not imply a gradual transition from industry to countries does not imply a gradual transition from industry to
services: the service sector posses the biggest share of GDP. services: the service sector posses the biggest share of GDP.
Italy
100%
Denmar k
100%
50%
60%
70%
80%
90%
100%
50%
60%
70%
80%
90%
100%
Services
Services
0%
10%
20%
30%
40%
7
0
7
2
7
4
7
6
7
8
8
0
8
2
8
4
8
6
8
8
9
0
9
2
9
4
9
6
9
8
0
0
0
2
0
4
0
6
0
8
0%
10%
20%
30%
40%
7
0
7
2
7
4
7
6
7
8
8
0
8
2
8
4
8
6
8
8
9
0
9
2
9
4
9
6
9
8
0
0
0
2
0
4
0
6
0
8
Industry
Industry
1
9
7
1
9
7
1
9
7
1
9
7
1
9
7
1
9
8
1
9
8
1
9
8
1
9
8
1
9
8
1
9
9
1
9
9
1
9
9
1
9
9
1
9
9
2
0
0
2
0
0
2
0
0
2
0
0
2
0
0
1
9
7
1
9
7
1
9
7
1
9
7
1
9
7
1
9
8
1
9
8
1
9
8
1
9
8
1
9
8
1
9
9
1
9
9
1
9
9
1
9
9
1
9
9
2
0
0
2
0
0
2
0
0
2
0
0
2
0
0
Source: World Bank data Source: World Bank data
Spain
100%
Aust r ia
100%
Services
50%
60%
70%
80%
90%
50%
60%
70%
80%
90%
Services Services
0%
10%
20%
30%
40%
7
0
7
2
7
4
7
6
7
8
8
0
8
2
8
4
8
6
8
8
9
0
9
2
9
4
9
6
9
8
0
0
0
2
0
4
0
6
0
8
0%
10%
20%
30%
40%
7
0
7
2
7
4
7
6
7
8
8
0
8
2
8
4
8
6
8
8
9
0
9
2
9
4
9
6
9
8
0
0
0
2
0
4
0
6
0
8
Industry Industry
1
9
7
1
9
7
1
9
7
1
9
7
1
9
7
1
9
8
1
9
8
1
9
8
1
9
8
1
9
8
1
9
9
1
9
9
1
9
9
1
9
9
1
9
9
2
0
0
2
0
0
2
0
0
2
0
0
2
0
0
1
9
7
1
9
7
1
9
7
1
9
7
1
9
7
1
9
8
1
9
8
1
9
8
1
9
8
1
9
8
1
9
9
1
9
9
1
9
9
1
9
9
1
9
9
2
0
0
2
0
0
2
0
0
2
0
0
2
0
0
Belgium
90%
100%
Gr eece
90%
100%
40%
50%
60%
70%
80%
90%
40%
50%
60%
70%
80%
90%
Services Services
0%
10%
20%
30%
1
9
7
0
1
9
7
2
1
9
7
4
1
9
7
6
1
9
7
8
1
9
8
0
1
9
8
2
1
9
8
4
1
9
8
6
1
9
8
8
1
9
9
0
1
9
9
2
1
9
9
4
1
9
9
6
1
9
9
8
2
0
0
0
2
0
0
2
2
0
0
4
2
0
0
6
2
0
0
8
0%
10%
20%
30%
1
9
7
0
1
9
7
2
1
9
7
4
1
9
7
6
1
9
7
8
1
9
8
0
1
9
8
2
1
9
8
4
1
9
8
6
1
9
8
8
1
9
9
0
1
9
9
2
1
9
9
4
1
9
9
6
1
9
9
8
2
0
0
0
2
0
0
2
2
0
0
4
2
0
0
6
2
0
0
8
Industry
Industry
Is the service sector less polluting? Is the service sector less polluting?
Recent studies show that in order to carry out any work that belongs Recent studies show that in order to carry out any work that belongs
to the service sector, a huge amount of energy and a great to the service sector, a huge amount of energy and a great
production of supporting materials is needed. production of supporting materials is needed.
Still, the service sector includes transport which is responsible for Still, the service sector includes transport which is responsible for
nearly of global energy related CO nearly of global energy related CO
22
2 500 0
2
7000000
t
)
2.000,0
2.500,0
m
e
t
r
i
c
t
o
n
s
C
O
2
Residential
5000000
6000000
7000000
e
m
i
s
s
i
o
n
s

(
k
t
1.000,0
1.500,0
m
i
l
l
i
o
n
m
Commercial
Industrial
2000000
3000000
4000000
C
O
2

0,0
500,0
9
0
9
1
9
2
9
3
9
4
9
5
9
6
9
7
9
8
9
9
0
0
0
1
0
2
0
3
0
4
0
5
0
6
0
7
0
8
Transportation
0
1000000
9
6
0
9
6
2
9
6
4
9
6
6
9
6
8
9
7
0
9
7
2
9
7
4
9
7
6
9
7
8
9
8
0
9
8
2
9
8
4
9
8
6
9
8
8
9
9
0
9
9
2
9
9
4
9
9
6
9
9
8
0
0
0
0
0
2
0
0
4
0
0
6
U.S. CO U.S. CO
22
emissions emissions
1
9
9
1
9
9
1
9
9
1
9
9
1
9
9
1
9
9
1
9
9
1
9
9
1
9
9
1
9
9
2
0
0
2
0
0
2
0
0
2
0
0
2
0
0
2
0
0
2
0
0
2
0
0
2
0
0
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
1
9
2
0
2
0
2
0
2
0
U.S. energy related CO U.S. energy related CO
22
by end use sector by end use sector
Source: IEA Source: IEA
7 4 Feedback 7 4 Feedback 7.4. Feedback 7.4. Feedback
Empirical EKC studies assume unidirectional causality from Empirical EKC studies assume unidirectional causality from
economy to environment. economy to environment.
But they ignore that environmental degradation in turn is possible to But they ignore that environmental degradation in turn is possible to
affect reversely the production capabilities of an economy affect reversely the production capabilities of an economy affect reversely the production capabilities of an economy. affect reversely the production capabilities of an economy.
Environment Environment
Income Income
Deteriorates Deteriorates
Environment Environment
(Economic growth) (Economic growth)
Deteriorates production capabilities Deteriorates production capabilities
Many studies examine the direction of causality between Many studies examine the direction of causality between
income and environmental degradation for many countries. income and environmental degradation for many countries.
Results show that in some countries causality runs from income to Results show that in some countries causality runs from income to
the environment, in other countries from environment to income and the environment, in other countries from environment to income and
in some countries the causality is bi in some countries the causality is bi--directional. directional. yy
7 5 Type of pollutant (local/global pollution) 7 5 Type of pollutant (local/global pollution) 7.5. Type of pollutant (local/global pollution) 7.5. Type of pollutant (local/global pollution)
The EKC concept stands only for certain types of pollutants The EKC concept stands only for certain types of pollutants
which have local short which have local short--term cost (short term cost (short--lived air pollutants and lived air pollutants and
water pollutants) water pollutants)
These pollutants can be reduced at relative small cost and the These pollutants can be reduced at relative small cost and the These pollutants can be reduced at relative small cost and the These pollutants can be reduced at relative small cost and the
change can be seen in relative short time period. change can be seen in relative short time period.
Action is taken when the negative effects of such pollutants are Action is taken when the negative effects of such pollutants are
i d t th (l l) lit f lif t ff t h i d t th (l l) lit f lif t ff t h recognized to worsen the (local) quality of life or to effect human recognized to worsen the (local) quality of life or to effect human
health directly. health directly.
The EKC concept does not apply on global pollutants that have The EKC concept does not apply on global pollutants that have p pp y g p p pp y g p
long long--term effects, currently little effect on human health and term effects, currently little effect on human health and
relative high abatement cost. relative high abatement cost.
Thi i th ti l f CO Thi i th ti l f CO i i ( d GHG) i i ( d GHG) This is the particular case of CO This is the particular case of CO
22
emissions (and GHG) emissions (and GHG)
When the EKC concept is considered for a particular pollutant, When the EKC concept is considered for a particular pollutant,
we should take under examination the spatial effect of this we should take under examination the spatial effect of this we should take under examination the spatial effect of this we should take under examination the spatial effect of this
pollutant. pollutant.
7 6 Type of economy (rich/poor) 7 6 Type of economy (rich/poor) 7.6. Type of economy (rich/poor) 7.6. Type of economy (rich/poor)
An EKC pattern seems to appear for the most developed of all An EKC pattern seems to appear for the most developed of all
th d l d i th d l d i d t f ll d t f ll hi h hi h i t i i t i the developed economies the developed economies and not for all and not for all high high--income countries. income countries.
Developing countries are in the upward side of an EKC Developing countries are in the upward side of an EKC
Developed countries are in the downward side of an EKC Developed countries are in the downward side of an EKC Developed countries are in the downward side of an EKC Developed countries are in the downward side of an EKC
Again, Again, developing countries will not follow the rich countries developing countries will not follow the rich countries
historical experience historical experience.. pp
Most of the developing countries are limited in terms of economic Most of the developing countries are limited in terms of economic
growth due to their colonial history as hinterlands for exploitation, the growth due to their colonial history as hinterlands for exploitation, the
continuing low prices of their exports unfavourable links with foreign continuing low prices of their exports unfavourable links with foreign continuing low prices of their exports, unfavourable links with foreign continuing low prices of their exports, unfavourable links with foreign
corporations and banks, and their lack of geopolitical power. corporations and banks, and their lack of geopolitical power.
In a finite world, the poor countries of today will be unable to find In a finite world, the poor countries of today will be unable to find
other countries to import pollution intensive products (pollution other countries to import pollution intensive products (pollution
havens). havens).
Current international conditions and interplays are not expected Current international conditions and interplays are not expected Current international conditions and interplays are not expected Current international conditions and interplays are not expected
to remain the same in the future. to remain the same in the future.
7 7 Some econometric issues 7 7 Some econometric issues 7.7. Some econometric issues 7.7. Some econometric issues
Many critiques on the EKC literature on econometric issues Many critiques on the EKC literature on econometric issues
have been exercised. have been exercised.
Econometric issues include: Econometric issues include:
Q lit f d t (diff t lt h i t ti d t Q lit f d t (diff t lt h i t ti d t Quality of data (different results when using concentration data Quality of data (different results when using concentration data
instead of emission data). instead of emission data).
No reports for No reports for heteroskedasticity heteroskedasticity tests. tests. pp yy
Omitted variable bias. Omitted variable bias.
Cointegration Cointegration of per capita GDP and per capita environmental of per capita GDP and per capita environmental
d d ti d d ti degradation. degradation.
Spatial effects of emissions to neighboring countries are not Spatial effects of emissions to neighboring countries are not
accounted. accounted.
The reduce form model of the EKC is not enough to accept or to The reduce form model of the EKC is not enough to accept or to
reject the EKC concept. reject the EKC concept.
St t l l i i d d St t l l i i d d Structural analysis is needed. Structural analysis is needed.
7 8 Consumption pattern 7 8 Consumption pattern 7.8. Consumption pattern 7.8. Consumption pattern
Economic activity includes production and consumption. The Economic activity includes production and consumption. The
part of consumption in many EKC studies is generally ignored part of consumption in many EKC studies is generally ignored part of consumption in many EKC studies is generally ignored. part of consumption in many EKC studies is generally ignored.
The question turns out to be how the consumption pattern of the The question turns out to be how the consumption pattern of the
representative agent will alter when his income rises. representative agent will alter when his income rises.
The positive effect of production improvements on pollution will be The positive effect of production improvements on pollution will be
counterbalanced by the rise of demand for pollution counterbalanced by the rise of demand for pollution--intensive goods intensive goods
(if the final consumption remains pollution (if the final consumption remains pollution--intensive). So, the whole intensive). So, the whole (if the final consumption remains pollution (if the final consumption remains pollution intensive). So, the whole intensive). So, the whole
effect may lead to rising environmental degradation. effect may lead to rising environmental degradation.
So So, , despite the significant progress towards sustainable despite the significant progress towards sustainable
development developed countries still have unsustainable development developed countries still have unsustainable development, developed countries still have unsustainable development, developed countries still have unsustainable
consumption patterns. consumption patterns.
EKC studies should count both the production pattern and the EKC studies should count both the production pattern and the p p p p
consumption pattern. consumption pattern.
7 9 Kuznets versus environmental Kuznets 7 9 Kuznets versus environmental Kuznets 7.9. Kuznets versus environmental Kuznets 7.9. Kuznets versus environmental Kuznets
The original Kuznets (1955) theory led many economists to The original Kuznets (1955) theory led many economists to
assume that rapid economic growth will assume that rapid economic growth will in an automatic way in an automatic way--
eventually lead to a more equal income distribution after a eventually lead to a more equal income distribution after a
meantime of rising income inequality meantime of rising income inequality meantime of rising income inequality. meantime of rising income inequality.
However, the income Kuznets hypothesis has not yet been proved However, the income Kuznets hypothesis has not yet been proved
enough by empirical data. enough by empirical data.
I t d i t i ith id i th th i I t d i t i ith id i th th i Instead, in countries with rapid economic growth, the income Instead, in countries with rapid economic growth, the income
inequality grew substantially inequality grew substantially. .
Similarly the EKC concept, accepts that the process of Similarly the EKC concept, accepts that the process of
economic growth will solve economic growth will solve somehow automatically somehow automatically--
environmental degradation. Many scientists propose that all an environmental degradation. Many scientists propose that all an
economy has to do is to grow economy has to do is to grow this growth process will this growth process will economy has to do, is to grow economy has to do, is to grow this growth process will this growth process will
eventually solve environmental problems. eventually solve environmental problems.
However, it is possible that rapid economic growth may lead to However, it is possible that rapid economic growth may lead to
irreversible environmental damage irreversible environmental damage. .
7 9 Kuznets versus environmental Kuznets 7 9 Kuznets versus environmental Kuznets 7.9. Kuznets versus environmental Kuznets 7.9. Kuznets versus environmental Kuznets
Kuznets (1955) proposed that his income inequality theory was Kuznets (1955) proposed that his income inequality theory was
suitable for UK, US and Germany but not for developing suitable for UK, US and Germany but not for developing
countries in which different historic, economic and sociopolitical countries in which different historic, economic and sociopolitical
conditions hold conditions hold conditions hold. conditions hold.
Therefore, the historical experience of some countries is not Therefore, the historical experience of some countries is not
expected to be repeated for other countries too expected to be repeated for other countries too.. p p p p
Similarly, a possible EKC pattern which appears in some Similarly, a possible EKC pattern which appears in some
countries, should not be expected for other countries. Countries countries, should not be expected for other countries. Countries
do not face the same conditions and the same problems. do not face the same conditions and the same problems.
Again, a possible EKC pattern for some pollutants does not imply an Again, a possible EKC pattern for some pollutants does not imply an
EKC pattern for pollution as a whole EKC pattern for pollution as a whole EKC pattern for pollution as a whole. EKC pattern for pollution as a whole.
Therefore, it is crucial to limit the bounds in which the EKC Therefore, it is crucial to limit the bounds in which the EKC
concept can be valid concept can be valid concept can be valid. concept can be valid.
8. Final Points 8. Final Points
The EKC concept may explain sufficiently the income The EKC concept may explain sufficiently the income- -
environmental degradation relationship, under certain environmental degradation relationship, under certain g p g p
assumptions and certain circumstances: assumptions and certain circumstances:
Transition of production from agriculture to industry and finally to Transition of production from agriculture to industry and finally to
th i t th i t the service sector. the service sector.
The service sector is less polluting. The service sector is less polluting.
Shift f f t l ll ti Shift f f t l ll ti i t i d i t i d Shift of consumer preferences to less pollution Shift of consumer preferences to less pollution--intensive goods intensive goods
when their income rises. when their income rises.
More equitable distribution of income when the economy grows More equitable distribution of income when the economy grows More equitable distribution of income when the economy grows. More equitable distribution of income when the economy grows.
Technological improvements in energy Technological improvements in energy--intensity. intensity.
Elimination of corruption. Elimination of corruption. Elimination of corruption. Elimination of corruption.
The pollutant under examination has local effect, low abatement The pollutant under examination has local effect, low abatement
cost and influences human health. cost and influences human health.
8. Final Points 8. Final Points
However, the EKC concept does not explain sufficiently the However, the EKC concept does not explain sufficiently the
income income--environmental degradation relationship, when: environmental degradation relationship, when:
For environmental degradation as a total. Pollution has many For environmental degradation as a total. Pollution has many
forms. forms.
For every country alone Each economy has unique For every country alone Each economy has unique For every country alone. Each economy has unique For every country alone. Each economy has unique
characteristics. characteristics.
For specific pollutants that have global effect, high abatement For specific pollutants that have global effect, high abatement
cost and do not affect directly human health. cost and do not affect directly human health.
An EKC pattern which has been proved for some countries, may An EKC pattern which has been proved for some countries, may
have occurred as the effect of the oil crises have occurred as the effect of the oil crises have occurred as the effect of the oil crises. have occurred as the effect of the oil crises.
The EKC concept disregards the use of energy. The EKC concept disregards the use of energy.
In some cases the improved environmental degradation was due In some cases the improved environmental degradation was due p g p g
to the imposition of environmental laws. to the imposition of environmental laws.
Results do not confirm sufficiently that the best and probably Results do not confirm sufficiently that the best and probably
l t li it i t l d d ti i t b i h l t li it i t l d d ti i t b i h
only way to limit environmental degradation is to become rich. only way to limit environmental degradation is to become rich.
9. Conclusions 9. Conclusions
The reduced EKC model does not provide an adequate The reduced EKC model does not provide an adequate
explanation on what reasons the inverted U relationship explanation on what reasons the inverted U relationship p p p p
may appear. may appear.
We do not still know clearly the underlying links. We do not still know clearly the underlying links.
Each economy is well different from another. Each economy is well different from another.
The EKC concept does not account these particularities. The EKC concept does not account these particularities.
Economic needs, geographic characteristics and climate Economic needs, geographic characteristics and climate
characteristics should be taken under consideration. characteristics should be taken under consideration.
S l l i i d d S l l i i d d Structural analysis is needed. Structural analysis is needed.
We need to decode the underlying links of the economic We need to decode the underlying links of the economic
activities with the special characteristics of each country activities with the special characteristics of each country activities with the special characteristics of each country. activities with the special characteristics of each country.
We need to account the energy needs that an economy may We need to account the energy needs that an economy may
have. have.
9. Conclusions 9. Conclusions
Suitable and available data are necessary to test the Suitable and available data are necessary to test the
possible link of environmental degradation with income. possible link of environmental degradation with income. p g p g
In any case, it is rather misleading to simply assume that In any case, it is rather misleading to simply assume that
all an economy has to do is to grow . all an economy has to do is to grow .
The environmental damage will have become unavoidable The environmental damage will have become unavoidable
and irreversible by then. and irreversible by then.
Environmental degradation affects reversely the process of Environmental degradation affects reversely the process of
economic growth. economic growth.
Th i i i t h th i th d Th i i i t h th i th d The main issue is not whether economic growth and The main issue is not whether economic growth and
environmental protection are conflicting targets. environmental protection are conflicting targets.
The main issue turns to be what happens when the EKC The main issue turns to be what happens when the EKC The main issue turns to be what happens when the EKC The main issue turns to be what happens when the EKC
concept does not fit. concept does not fit.
The Relationship between Economic Growth and The Relationship between Economic Growth and The Relationship between Economic Growth and The Relationship between Economic Growth and
Environmental Degradation Environmental Degradation
((E i t l K t C E i t l K t C )) ((Environmental Kuznets Curve Environmental Kuznets Curve) )
Dimitra Kaika and Efthimios Zervas Dimitra Kaika and Efthimios Zervas t a a a a d t os e as t a a a a d t os e as
Hellenic Open University Hellenic Open University
zervas@eap.gr zervas@eap.gr
Thank you for your attention! Thank you for your attention! Thank you for your attention! Thank you for your attention!

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