The Myth of Environmental Kuznets Curve

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Environmental Kuznets Curve (source: 10.1016/j.ecolecon.2004.02.011)

Environmental Kuznets curve (EKC) is not for all. High-income countries produce less pollution simply because their raw materials have already depleted and hence forcing them to move out their production activities to developing countries. By “exporting” their dirty industry out of the territorial, they have “cut” the waste and emissions that come from production. What remains is the emission from consumption, which exists in relatively low order compared to the by-product of raw material processing. This situation makes it feasible for developed countries with the financial capability to properly examine various waste treatment methods. These factors result in the downward trend of environmental degradation alongside increased national income. Nevertheless, is it possible for current low or middle income, which carry the heavy burden of production owned by high-income countries, to follow the EKC?

If we apply the mass balance theorem to the general view of production activities, we know that the lesser input (raw materials) makes lesser output (waste) to the environment. Thus it only makes sense that, at some point, environmental degradation would reach a turning point due to resource scarcity. High-income countries have already started exploiting their natural resources, such as fossil energy, since the widespread industrial revolution in the early 19th century. As their economies grow exponentially, they face increased production costs resulting from natural resource scarcity and rising wages. Consequently, shutting down or moving out the material and labor-intensive industry became inevitable. Of course, fewer industries in a territory would result in less pollution for that territory since the common measure is territory-based, not consumption-based.

Although the consumption and waste generation per capita are high in high-income countries, the intensity (i.e., per economic output) is relatively low thanks to the “offshoring” of the extractive and manufacturing industry to the developing countries. Huge fiscal capacity, combined with the artificially lowered waste and emission intensity, helps high-income countries to apply innovative waste and emissions management approaches. It can be seen from the trend of waste and emission management knowledge and technology development centered in high-income countries. These conditions support their efforts to lower the environmental footprint even more, following the path shown by the Environmental Kuznets Curve.

On the other hand, low and middle countries find it difficult to follow the EKC pathway because of the waste and emissions-intensive industry they have to bear. Moreover, the fiscal capacity is still low due to the domination of the primary industry, which only produced a little value added. Overflowing waste and emissions and inadequate financial capacity hinder green technology advancement. It is also hard to adopt new technology and knowledge if there is too much pollution to handle. This condition is expected to sustain over a long period, even forever, because of the needs to maintain the structured relationship between the low-cost countries and their customer/supplier countries. Hence, it is almost impossible for emerging economies, especially the low income, to follow EKC as high-income countries does. The most likely form of EKC for emerging economies is as follows:

Most likely form of EKC for emerging economies

*this is just a random thought of mine, which means it needs further research to validate