The Kuznets curve is a graphical representation of the relationship between economic growth and environmental degradation. The adaptation, presenting the approach to the Kuznets curve, was popularized by the economists Grossman and Krueger.
In the Environmental Kuznets Curve (EKC), the assumption is that environmental degradation increases with the industrialization of countries. However, at a critical point, degradation starts to decrease.
In a sample over 42 countries, scholars Grossman and Krueger found the correlation with two air pollutants: sulfur dioxide and smoke. The concentration was higher with low levels of GDP per capita and decreased with its growth. Also, the critical level was identified between $ 4-5,000, after which pollution begins to decrease.
What factors explain the shape of the environmental Kuznets curve?
Some of the elements that various specialists use to explain the environmental Kuznets curve are:
- Production structure: as an economy develops, the composition of the products changes. The share of sectors with lower emission intensity absorb a greater share of GDP. For example, the extraction of natural resources decreased and the weight of the service sector increases;
- Technological progress and productivity: both elements are strengthened by economic growth and they tend to reduce pollution levels directly. A clear example of intentionality is the development of renewable energies. Although at the beginning the high investment costs represent a disadvantage, as production becomes more efficient these costs decrease.
- Consumption capacity: the availability of extra income makes people more willing to pay more for green products and services;
- Regulation: as economic growth is generated, cities tend to use more vehicles. But as pollution deteriorates the standard of living and threaten public health, governments will tend to regulate air pollution levels.
Criticisms to the environmental Kuznets curve
Despite Grossman and Krueger's findings, some researchers argue that there is not enough evidence to support the hypothesis of the Kuzents curve.
First of all, the reduction in pollutants stated by Grossman and Krueger do not occur for all pollutants. For example, their existence has been documented for SO2, but less for CO2. Secondly, their presence in one country may be the result of the displacement of polluting productions in another country, so that geographically the overall balance would not always be positive for the criticalities of the EKC. In addition, as long as advanced economies can reduce their pollution levels, they persist in importing goods from emerging economies. In this sense, indirect environmental degradation should be also take into account when processing the curve. Moreover, some economists say that as long as a country expands its production, it will continue to need environmental resources to sustain it.
(water and soil purification, climate mitigation, carbon sequestration, pollination)The deterioration of resources and biodiversity also entails very high procurement costs which translate into higher prices for final products and services. Also important to underline once again that the ecosystem services that nature gives us for free have a very high cost for the economy as they degrade and cannot often be replaced by humans works. Therefore, a sustainable business model, in addition to customer and other stakeholder loyalty, also protects public spending, the markets and the health care.
However, one non-trivial question remains: can progress really be achieved through an economic structure different from the current one?
Certainly it is possible. By focusing on a sustainable and circular economic approach, we can exponentially increase the economic revenue, going to generate social and environmental value, which in turns increases natural and human capital, which are closely linked to the economic capital.
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Giulia Faleri is Cofounder at the Italian startup Vezua, the omnichannel sustainability marketplace. She is also a board member of the Italian holding 76 Investimenti. She is a young changemaker of Ashoka network for the EU GEN-C Project promoted by Horizon EU and Agenzia Italiana Giovani. She’s among the youngest female entrepreneurs and is now working in Dubai as UAE Partnership Facilitator for Companies and UAE Investments Advisor.