natural resource economics

1. ENVIRONMENTAL KUZNETS CURVE
•

2. INTRODUCTION
• In the 1980s large issues such as ozone layer depletion, global
warming and biodiversity loss began to refocus the debate around the
impacts of environmental degradation on economic growth.
• Interest was shifting away from natural resource availability towards
the environment as a medium for assimilating wastes

3. • This led to the emergence of the 'source' to ` sink concept..
• source to sink concept is a theoretical model used by ecologist to
describe how variation in habitat quality may affect the population
growth or decline of organisms.
• The Brundtland Report (1987), the discourse of sustainable
development largely embraced economic growth as a way out of
poverty, environmental degradation particularly for the developing
world.

4. • Why might economic growth benefit the environment?
• There are a number of theoretical explanations that suggest the sink
side of the environment will be less impacted as incomes rise.
• Environmental quality is often cited as a normal good, if not even a
luxury good.
• Sustainable development is the achievement of a sustained path of
economic growth which does not undermine future generation
possibilities of consumption.

5. • In addition, rich countries may be better able to meet the higher
demands for environmental protection through their institutional
environmental capacity.
• In other words, the income elasticity of demand for environmental
quality is greater than zero, possibly even greater than one, or as
income grows environmental concern rises as well, perhaps even
more than proportionally so.

6. • While pollution per unit of output might go down, absolute pollution
levels might very well go up as economic growth increases. Therefore
the effect of technological change on pollution is in principle
ambiguous
• As economic development progresses and income grows, the share of
industry will go down as services goes up, thus sectoral changes may
favor less-polluting sectors.

7. • It is likely that economic growth increases the possibility that more
modern and less pollution intensive man-made capital and
technology are introduced.
• It is also suspected that high-income countries have become cleaner
because they have exported their pollution- intensive industry to
Least Developed Countries, also known as the "pollution haven
hypothesis.

8. • Rising income brings population growth rates down, therefore
population pressure on the environment decreases.
• Thus the relationship between economic growth and the
environment came under increased scrutiny.
• In the 1990's the empirical literature on the link between economic
growth and environmental pollution literally exploded.
• Much of this literature sought to test the Environmental Kuznets
Curve (EKC) hypothesis.

9. Environmental KUZNETS CURVE;
• Simon Kuznets (1955) examined the relationship between income
inequality and per capita income of a country.
• He found that income inequality initially increased and then decreased.
Because of the similarity, curves showing how EQ or pollution changes with
changes in income of a country are known as EKCs
• Environmental Kuznets Curve (EKC) gives the relationship between
economic development and EQ.
• EKC states that during the initial phase of economic development,
degradation of environment in quality and quantity can take place but
subsequently improves

12. • In the initial phase of economic growth the emphasis is on enhancing
production and consumption.
• During this phase, there will be higher levels of poverty, income
inequality, lack of community level institutions and neglect of
environment.
• At higher levels of economic development due to technological changes,
improvement in efficiency in the use of resources, increased awareness
among people about the hazards of environmental degradation and
better implemented environmental regulations there is an improvement
in EQ.
• After a certain range of development, the efficiency in the use of natural
resources increases as markets for the environmental resources develop
and prices begin to reflect the true value of natural resources.

13. EKC SHAPE
• The EKC states that there is inverted 'U' shaped relationship between
income inequality and per capita income of a country. .
• The EKC curve which is a hypothesized relationship between various
indicators of environmental degradation and income per capita is
given….

14. EKC

15. Four phases;
• Phase 1: There is income growth, and EQ improves faster than GDP
per capita,
• Phase II: EQ improves but is slower than the rate of economic growth.
At higher standard of living, people value EQ more. Environment
becomes a luxury and WTP is more for clean environment.
• Phase III: Beyond a certain level of income, EQ decreases despite
economic growth,
• Mainly Phase IV: It may exist only in the case of certain
pollutants.because of industrial pollutants..

16. • The empirical verification of EKC was first attempted by Pukert (1973)
using time-series data of 53 countries.
• The pollutants like CO, NO, SPM and per capita energy consumption
were considered. He found conflicting patterns with respect to each
of these pollutants.
• The relation between p.c.i. and EQ can be monotonic/non-
monotonic

17. • The standard EKC regression model is given as follows:
• In Eit =αi+γt+β1 ln Yit + β2 (in Yit)+∑it
• where, Eit= Emissions per capita
• Y= GDP per capita
• ∑ =random error term αi and γt are intercept parameters which vary across countries i and year t.

18. Causes of Environmental Kuznets curve
1.Empirical evidence of declining pollution levels with
economic growth
2.Spare income with growth.
3.Focus on living standards as opposed to real GDP
4.Improved technology.
5.Solar and renewable energy
6.De-industrialization
7.Role of government regulation.
8.Diminishing marginal utility of income.

19. • Criticisms of Kuznets Environmental Curve
1.Empirical evidence is mixed. There is no guarantee that
economic growth will see a decline in pollutants.
2.Pollution is not simply a function of income, but many
factors. For example, the effectiveness of government
development of the economy, population levels.
3.Global pollution. Many developed economies have seen a
reduction in industry and growth in the service sector, but
importing goods from developing countries.

20. • Growth leads to greater resource use. Some economists argue
that there is a degree of reduced environmental degradation post-
economy continues to expand, then inevitably some resources will
greater measure.
• Countries with the highest GDP have highest levels of CO2
emission. For example, US has CO2 emissions of 17.564 tonnes per
capita. Ethiopia has by comparison 0.075 tonnes per capita. China’s
increased from 1,500 million tonnes in 1981 to 8,000 million tonnes

21. The EKC hypothesis is criticized
• The EkC hypothesis is criticized for the following reasons:
• (1) The inverted U shaped curve is found only for few pollutants,
mainly those that have local health effects and can be dealt without
great expense.
• (2) It ignores ecological dimensions of environmental problems like
carrying capacity of ecosystem, etc.

22. • (3) No convincing explanation is given to why pollutant levels fall after
a certain income level has been reached.
• (4) Not all empirical studies support the hypothesis. The limitations of
the empirical studies could be use of emissions/concentrations as
indicators of environmental pressure, different estimation methods
were used and conversion of p.d.l. to comparable monetary units

23. • . (v) The inverted U shaped relationship between EQ and income
applies to a set of selected pollutants only. Example: In industrialized
countries, the emission of CO; or 50, may be relevant. In LDCs, over
exploitation of timber, soil and water may be more relevant as a proxy
for consumption of environmental resource.
• (vi) Apart from income, social factors such as income equality,
literacy and greater political liberties tend to have a significant
positive effect on EQ, especially in the low income countries.
• EKC cautions us against viewing economic growth as the prescribed
remedy to environmental problems in developing countries

24. • When the EKC relation holds, what might be the reason? Here are
some possible explanations:
• Environmental quality may be income elastic. As individuals enjoy
greater incomes, they demand better environmental quality either
through markets or regulatory policies.

25. • At lower levels of per capita income found in pre- ndustrial and
agrarian economies, one might expect rather pristine environmental
conditions relatively unaffected by economic activities.
• The EKC relationship suggests that as development and
industrialization progress, environmental damage increases due to
greater use of natural resources, more emission of pollutants, the
operation of less efficient and relatively dirty technologies

26. • The high priority given to increases in material output, and disregard
for or ignorance of the environmental consequences of growth.
• In the post-industrial stage, cleaner technologies and a shift to
information and service-based activities combine with a growing
ability and willingness to enhance environmental quality

27. • Rich countries outsource their polluting industries to less developed
countries.
• There is an increasing role of democracy with economic development.
Since emissions of many environmental pollutants reflect missing
markets, government institutions are necessary to address them.
• More responsive democracy may be necessary in order to translate
individual demand for environmental quality into policies that restrict
pollution

29. • In the above graph we have tried to obtain the Environmental Kuznets
Curve by plotting the per capita income on the X axis and the quantity
of sulphur emissions on the y axis starting from the year 1850 to 2005
with a 10 year interval.
• In the year 1970 when the per capita income was 21.00274
• The curve assumes an inverted V-shape.
• Sulphur emissions mainly come from manufacturing production
activities.

30. • Levels of income per capita under $1,000. Between $1,000 and
$3,000 both the economy and environmental degradation undergo
dramatic structural change from rural to urban and from the pursuit
of agricultural production to industrial production.
• For the 1960s, toxic intensity grew most quickly in high- income
economies. This pattern is sharply reversed during the 1970s and
1980s, when toxic intensity in manufacturing in less developed
countries grew most quickly

32. • Carbon dioxide (CO2) emissions with regard to the same years
• we found a different trend, one which was consistently increasing.
• Carbon emissions arise from not only production but also from
• consumption such as:
• 1. Automobile use
• 2. Burning of fossil fuels for the generation of electricity

33. • Poverty and Environment:
• The linkages between poverty and environment are highly complex.
An argument is generally made that poor people have a tendency of
overusing resources like land, forests and water, thereby degrading
them.
• There is some evidence to show that the poor are more dependent
upon such natural resources, but not enough evidence to show that
they overexploit or neglect them. Of course with large number of
poor people the total environment damage may be high.
• Even then, it is the type of property right (such as open access or
neglected stateproperties) that can be the major cause of
environmental degradation.

34. Cont,,,,
• On the contrary, there is some evidence that degrading environment hurts
the poor class. This is particularly the case in such societies where people are
most dependent upon CPRs.
• For example, shortage of drinking water or fuel wood affects the poor more
than the rich,
• linkage between poverty and environment is influenced by population
pressure as well.
• An argument is that economic growth may reduce population pressure due
to declining fertility with income growth, improved education and health
care.
• But even with declining growth, sections of population may get locked in a
cycle of poverty, which maintains high fertility rates. the direction of linkage
is very difficult to establish among several of these economic and
environmental attributes.

35. • Empirical evidence of linkages between poverty and environment
based on Indian data:
• (i) There is no strong evidence between environmental degradation
and poverty or income inequality.
• (ii) There is little evidence to say that with economic development
environmental degradationcan take place. There is a very marginal
increase with deforestation as the indicator of environmental
degradation.
• (iii) Population growth seems to affect environmental conditions
adversely from the point of view of extent of wastelands.

36. Conclusion;
• The following conclusions can be made regarding the linkages
between environment and poverty, based on experiences and
situations in several countries:-
• There is some evidence to suggest that increase in poverty may
impact the environment negatively.
• But there is stronger evidence to suggest that environmental
degradation enhances the hardship to the poor.

37. • . Example: fuel wood crisis or drinking water shortage that follows
deforestation affects the poor.
• Studies after Kuznets show that there is no clear relationship between
increase in poverty and economic growth.
The relationship between economic development andenvironmental
degradation is quite mixed - U shaped, inverted U shaped or S shaped.
• There is also no clear relationship between EQ and population
growth

38. ARTICAL
• The environmental Kuznets curve for carbon dioxide in India and China:
Growth and pollution at crossroad
• D Pal, SK Mitra - Journal of Policy Modeling, 2017 - Elsevier
• This study probes cointegration among carbon dioxide (CO 2)
emissions, economic activity,
energy use, and trade, and examines the environmental Kuznets curve
(EKC) hypothesis.
We undertake a comparative analysis between India and China over
the period 1971–2012
by using the autoregressive distributed lag model of Pesaran et
al.(2001).
• This study establishes a long-run effect of economic activity and trade
openness and a short-run effect of energy use on CO 2 emissions. It
shows the N-shaped relationship between CO 2

39. CO2 emissions, energy consumption, trade and income: a
comparative analysis of China and India
• K Jayanthakumaran, R Verma, Y Liu - Energy Policy, 2012 -
Elsevier
• In order to prevent the destabilisation of the Earth's biosphere,
CO2 emissions must bereduced quickly and significantly.
• The causes of CO2 emissions by individual countries
need to be apprehended in order to understand the processes
required for reducing emissions around the globe.
• China and India are the two largest transitional countries and
growing economies, but are in two entirely different categories in
terms of structural changesin growth, trade and energy use.
• CO2 emissions from the burning of fossil fuels have

40. Reference
• Alam R, Adil MH (2019) Validating the environmental Kuznets
curve in India: ARDL bounds testing framework. OPEC Energy
Review 43(3):277–300
• Kanjilal K, Ghosh S (2013) Environmental Kuznet’s curve for India:
evidence from tests for cointegration with unknown
structuralbreaks
• The environmental Kuznets curve for carbon dioxide in India and
China: Growth and pollution at crossroad
• D Pal, SK Mitra - Journal of Policy Modeling, 2017 – Elsevier
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