The Environmental Kuznets Curve (EKC) hypothesizes that the relationship between per capita income and the use of natural resources and/or the emission of wastes has an inverted U-shape. According to this specification, at relatively low levels of income the use of natural resources and/or the emission of wastes increase with income. Beyond some turning point, the use of the natural resources and/or the emission of wastes decline with income. The term EKC is based on its similarity to the time-series pattern of income inequality described by Simon Kuznets in 1955.

Reasons for this inverted U-shaped relationship are hypothesized to include income-driven changes in: (1) the composition of production and/or consumption; (2) the preference for environmental quality; (3) institutions that are needed to internalize externalities; and/or (4) increasing returns to scale associated with pollution abatement.

A 1992 World Bank Development Report made the notion of an EKC popular by suggesting that environmental degradation can be slowed by policies that protect the environment and promote economic development. Subsequent statistical analysis, however, showed that while the relationship may hold in a few cases, it could not be generalized across a wide range of resources and pollutants. Many of the analyses that claim to find evidence a turning point in the relationship between income and carbon emissions used poorly designed studies and/or inappropriate statistical methods.

A simple plot of relationship between CO₂ emissions and income for individual countries appear to support the EKC theory.  However, rigorous cross-country comparisons reject the existence of a universal EKC for carbon when factors that affect emissions other than income are accounted for. In developing nations, the relationship between emissions and income is positive: higher incomes produce higher emissions.  There is no evidence for a turning point. In industrial nations, there is limited support for a turning point in the relationship between income carbon emissions at around $25,500 per capita (constant 1996 $US).  This level of income is found only in the world’s  most affluent nations (United States, Norway, Switzerland, etc.).

The implications of the EKC research are clear: we cannot depend on a turning point in the relationship between income and carbon emissions to reduce emissions. The absence of a turning point undercuts the widely held notion that economic growth improves both living standards and environmental quality. Without this link, policy to reduce energy use and/or carbon emissions must go beyond simply promoting economic growth, and specifically target energy use and carbon emissions.

Sources

• Coondoo, Dipankor and Soumyananda Dinda, Carbon dioxide emission and income: A temporal analysis of cross-country distributional patterns, Ecological Economics, Volume 65, Issue 2, 1 April 2008, Pages 375-385, ISSN 0921-8009.
• Richmond, Amy K. and Robert K. Kaufmann, Is there a turning point in the relationship between income and energy use and/or carbon emissions?, Ecological Economics, Volume 56, Issue 2, 15 February 2006, Pages 176-189, ISSN 0921-8009, DOI: 10.1016/j.ecolecon.2005.01.011.
• Richmond, Amy (Lead Author); Eric Zencey (Contributing Author); Cutler J. Cleveland (Topic Editor). 2007. "Environmental kuznets curve." In: Encyclopedia of Earth. Eds. Cutler J. Cleveland (Washington, D.C.: Environmental Information Coalition, National Council for Science and the Environment). [First published in the Encyclopedia of Earth September 15, 2007; Last revised December 4, 2007; Retrieved May 20, 2009]. <http://www.eoearth.org/article/Environmental_kuznets_curve>
• Stern, David I. 2004. The rise and fall of the environmental Kuznets curve, World Development 32(8): 1419-1439.