Improving the Environment for a Greener Future
New Horizons in Environmental Economics series
Chapter 10: Increasing Returns to Pollution Abatement in the United States
INTRODUCTION The environmental Kuznets curve (EKC) proposes that there is an inverted U-shaped relationship between a specific measure of environmental pollution and per capita income levels. Starting with the seminal work of Grossman and Krueger (1993, 1995), a number of empirical studies have examined this relationship for various pollutants, regions, and time periods. Researchers have found an inverted U-shaped relationship, monotonically increasing or decreasing, between pollution and a rising per capita income level. Stern (2004) and Yandle et al. (2004) have provided a summary and discussions of the empirical literature (see also Selden and Song, 1994; Ekins, 1997; the special issue of Ecological Economics, 1998; Stern, 1998, 2002; Ansuategi and Perrings, 2000; Cavlovic et al., 2000; Anderson and Cavendish, 2001; Antweiler et al., 2001; Bulte and van Soest, 2001; Esty, 2001; Dasgupta et al., 2002; Harbaugh et al., 2002; Khanna, 2002; Lieb, 2002; Lindmark, 2002; Kelly, 2003; and Millimet et al., 2003). These studies have shown that there is no single relationship between environmental pollution and per capita income that fits all types of pollutants, regions, and time periods. An important criticism of the empirical studies is that they yield little insight into the mechanisms of the inverted U-shaped relationship. At best, time-trend variables have been taken into account to test for developments unrelated to income (see, for example, Hilton and Levinson, 1998). This trend may reflect technological progress resulting in lower pollution intensities. However, time trends capture several other factors, such as rising relative energy prices, resulting in substitution...
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