Burtynsky vs the EKC - economic growth and the environment

 The photographs to the right are the work of Edward Burtynsky, a photographer who seeks to document the impact that mankind has on the landscape. To me, his spectacular photos powerfully illustrate the impact that economic production and economic growth have on the environment, presenting such production as polluting and environmentally destructive.  Somewhat unsurprisingly, however, a significant body of environmental economic literature argues the opposite of this maintaining that economic growth is ultimately beneficial for the environment. So which relationship growth-environment relationship is correct?

The optimistic hypothesis discussed in the economic literature is known as the Environmental Kuznets Curve and was developed after several empirical studies during the early 1990s observed that inverted-U relationships existed between economic growth and a range of environmental quality indicators (for example see Grossman and Krueger 1991). In an attempt to explain these observed relationships, Panayotou (1993) has decomposed the net effect of economic growth on the environment into distinct scale, composition and abatement effects concluding that EKC relationships occur as the relative magnitude of these effects changes over time. Initially the scale effect dominates as increased production causes increased environmental degradation but this is eventually offset by the composition and technology effects as economic production shifts from industrial to service sectors and resources are devoted to abatement activities.

While the vast majority of the EKC literature is extremely reluctant to draw generalised conclusions about the nature of growth-environment relationships, the EKC is a much abused piece of economic theory that is often seized upon by those opposed to environmental policy in order to deny any incompatibility between economic growth and environmental quality. Such cavalier use of the concept conveniently overlooks the fact that no empirical studies have observed that EKC relationships exist for greenhouse gases and makes the significant error of confusing correlation with causation as, even in the cases where EKCs have been observed it is not suggested that economic growth per se causes the inverse-U relationship.

A likely explanation of EKC trends is that as richer countries deindustrialise and develop service-based economies, they export environmental degradation to other less developed rapidly industrialising countries (Cole 2004). This is a significant point as it implies that the growth-environment experiences of wealthier countries may not be replicable as other countries develop; the world will always demand manufactured goods and these have to be produced somewhere. Another interesting explanation emphasises the significance of democratic rights and equality with Torras and Boyce (1998) arguing that more equal power distributions – assessed using literacy, political rights and civil liberties indicators – are significant determinants of the EKC relationships that have been observed for certain air and water quality indicators.

Several further factors that are often ignored by EKC fanatics include the existence of natural thresholds and irreversibility in environmental systems and the neglect of feedback effects from the environment and the economy – for example the significant disruptions in economic activity that may result from increased climate variability. A discussion of these issues can be found in section 2.7 of Panaytou (1993).

Overall, it appears that neither my negative interpretation of Burtynsky’s photos nor the optimism of the EKC is entirely representative of the environmental impacts of economic growth: the empirical evidence suggests that economic growth is – under certain conditions – able to achieve improvements in local environmental quality but not reductions in environmental pollution at a more global scale. Despite this ambivalent conclusion, in the context of global warming and climate change it is the latter point that is most relevant which implies that economic growth alone cannot be relied upon to achieve a green transition.