Transcript Ambiente e sviluppo

Facoltà di Economia “G. Fuà”
Università Politecnica delle Marche
Environment and Economic Development
Topics
 The concept of sustainable economic growth
and development
Environmental sustainability, steady-state growth and development
Sustainable growth and environmental taxes
 The relation between environmental quality and
economic development
The Environmental Kuznets Curve (EKC)
Economic explanations of the EKC
Environment and Less Developed Countries (LDC)
1
Environmental resources and
economic growth
 The key-issue, so far, has been to find a way, even through appropriate
policies, to achieve the optimal allocation of environmental resources,
either in the form of optimal pollution level or optimal extraction of natural
(renewable or not) resources.
 This analysis of optimal allocation have been carried out using the classical
concepts and instruments of welfare economics: take into account current
(or discounted) benefits and costs associated to the use of the resource by the
different components of the society and maximize the difference.
 This is, however, a microeconomic perspective in the sense that it concerns
interests and utility of individuals using the resource or bearing negative
externalities. The same kind of problem, however, could be also seen from an
aggregate perspective, dealing with the whole economic system and the its
use of resources: that is, a Macroeconomic perspective.
 The macroeconomic question arises because in all cases considered so far,
the optimal solution implies some limitation of production if compared to a
private perspective. In aggregate terms this would imply to limit the whole
aggregate output production, therefore, limit economic (GDP) growth
(Meadows et al., “The Limits to Growth”, 1972).
2
Environmental sustainability and
economic growth - 1
 Let’s start from a reductive and reductionist point of view, that is, from the naive
idea that economic development corresponds to economic growth. Therefore,
focus the attention on the relation occurring between the use of an environmental
resource (E; e.g. fossil energy) and the real GDP of a given country.
 Conservation of this environmental resource may be intended as a constrain to
private good production as the production function of aggregate output uses the
environmental good as a production factor together with a conventional factor,
namely capital (K). Let’s assume, for instance, a Cobb-Douglas production
function:

1
t
Yt  Kt E
with  1
Dividing by E we obtain the output intensity, that is, per unit of use of
environmental good E (Y/E = y), expressed as function of capital intensity (K/E

= k):
 Kt 
Yt


 yt  

k
t
E 
Et
 t 
Environmental sustainability, in its restrictive definition (strong sustainability),
implies: Et=Et+1=E*. Furthermore, let’s assume that investments in new-vintage
capital is a fixed proportion of output (savings s): Kt+1 - Kt = s Yt
3
Environmental sustainability and
economic growth - 2
 We can divide this saving equation by E* to obtain:

t 1
t
t
t
k  k  s y  sk
and dividing by kt:
kt 1  kt K t 1  K t

 s kt 1
kt
Kt
 This equation shows that under environmental sustainability (Et=Et* t) k can
grow, thus K and Y as well. Therefore, environmental sustainability does
not impede economic growth.
 Nevertheless, as  < 1, i.e. decreasing marginal returns of capital, K and Y do
grow but at a decreasing rate over time, thus tending to a steady-state of K
and Y. In the long-run, therefore, environmental sustainability seems to imply
stead-state, namely zero-growth: the sustainable equilibrium tends to be a
steady-state equilibrium (N.B.: not steady-state growth).
 Under this perspective, environmental sustainability does appear a major
constraint to economic growth (“Limits to growth”) as it tends to zero-growth. If
we thus identify economic development simply with economic growth, then the
idea of sustainable development becomes a contradictory concept.
 In practice, however, as well as in economic theory, non-zero steady-state
growth remains possible. Let’s see how:
4
Environmental sustainability and
economic growth - 3
 How can we maintain a constant level of E* making, at once, Y grow at a
positive and non-decreasing rate? The key-idea is the environment saving
technical change, that is, technical change allowing for productivity of E, (Y/E),
to regularly and continuously grow over time.
 This can only occur whenever we assume that new-vintage capital, namely
investments, do contain a better technology, making possible to obtain the
same output level Y with a lower use of E (environmental friendly technology).
Such concept can be made explicit by introducing a new variable, ht, that
improves E productivity as follows:

1
Yt  Kt ht Et

Yt  Kt Et

and that is also expressed as a quota  of past investments, ht =  Kt . Therefore:
1
 By repeating previous analysis we can easily demonstrate that, with E
constant (E*), we have:
K t 1  K t Yt 1  Yt

s  E *
Kt
Yt


1
That is, a positive and non-decreasing sustainable growth rate.
5
Sustainable growth and
environmental taxes - 1
 There is a major problem, however, in viewing sustainable growth in a such
straightforward way. In fact, even if it were possible to maintain a nondecreasing growth rate maintaining E constant, it would remain open the
question on how to make E remain constant.
 As E productivity, (Y/E), is expected to grow more than K productivity, if the
price of E (pE) does not increase rapidly enough, producers will tend to use an
higher amount of E (more than E*, eventually exhausting it). It is thus
necessary that price of E increases at least at the same rate of E productivity. If
E is a public good, this may be achieved by appropriate policies for instance
introducing an environmental tax on any unit of E (tE).
 Therefore, to maintain the use of E at the constant level E* is must be:
pEt  t Et  Pm( E * ) t

1     1 K t

E 
* 
where Pm(E) is the marginal productivity of E (expressed in unit of Y).
6
Sustainable growth and
environmental taxes - 2
Conditions to achieve sustainable growth in the
presence of natural resources:
 Environment saving technical change, that is high
(perfect) substitutability between artificial and natural capital,
in such a way the latter becomes unessential
 The price of natural resources increasing at least at the
same rate of economic growth (i.e., of K and Y) so that the
demand (use) of the resources themselves remain constant:
 If the resource is “public” then it will be necessary to impose
a tax whose size increases at the same rate of economic
growth and whose revenue is then reinvested in artificial
capital substituting the natural resource
 If the resource is exhaustible and “private” (e.g., oil) the
price increase (scarcity rent) will have to be reinvested in
artificial capital (the Hartwick rule).
7
A wider concept of sustainable
development
 Economic development is a much wider concept that economic growth. The
former incorporates the latter but also takes into account all those processes
usually accompanying economic growth: change in technology, preferences,
institutions, human capital, sectoral composition etc.
 If with “development” we mean higher level of welfare and well-being, this does
not only depends on the available amount of natural resources, but also and
mostly on the quality of their management in terms of equal distribution,
conservation-restoration and substitution: “sustainability” can not simply mean to
maintain a constant quantity of natural/environmental resources.
 Therefore, to combine the concepts of economic development and
environmental sustainability we need a wider (and necessarily more generic and
vague) perspective than the simple idea of sustainable growth. This is
sustainable development:
“development that meets the needs of the present generation
without compromising the ability of future generations to meet
their own needs”
“We do not inherit the Earth from our parents, we borrow it from our children“
(Native American saying)
8
Relation between environmental
quality and economic development - 1
 This definition of sustainable development has become widely used and
accepted since 1987, when it was firstly proposed within the famous
document Our Common Future (Bruntland Report) of the World
Commission on Environment and Development (UN).
 This document pioneered numerous political initiatives within the UN on
several environmental issues. It also raised the interest of many
economics on the actual relation occurring between environmental (its
quality and degradation or depletion) and economic development
 Over recent decades, in fact, such relation turned out to be much more
complex than expected revealing that both “pollution of affluence” and
“pollution of poverty” could actually co-exist and even reciprocally
reinforce.
 In particular, the empirical evidence demonstrated that, in many cases
environmental degradation and poor environmental performance (E) is
not necessarily proportional to economic growth (Y). It is the quality of
growth (Y) rather that its quantity that has to do with E.
9
Relation between environmental
quality and economic development - 2
 Two empirical facts related to this:
 1) the so-called Environmental Kuznets Curve (EKC);
 2) the poor environmental performance of poorer and low-growth
countries (Less Developed Countries, LDC): the “poverty trap”.
 The consequent practical implications for the idea itself of
sustainable development are opposite to the “limits to growth”
perspective:
 1) environmental sustainability is a “natural” consequence of higher
levels of economic development
 2) from the environmental perspective, the most urgent question is
not how to achieve a sustainable economic development but how to
prevent an unsustainable economic underdevelopment
1.
2.
The real world, however, provides contrasting evidence, as usual, on the actual
relation between economic growth and the environment:
On the one hand, during the last half century in developed countries emissions
per GDP unit of many air pollutants (SO2, NOX, CO, PM10, etc.) did actually
decrease.
On the other hand, GDP has grown even more intensively such that, eventually,
the total amount of emissions for many of these pollutants did increase.
10
The Environmental Kuznets Curve (EKC)
INEQUALITY
 The original Kuznets curve is the
inverted U-shape relation between
economic development (growth) and
economic inequality studied by this
economist mostly in ’50s. Questions
about its empirical validity and
theoretical foundations are still open.
 For instance, CO2 emissions in Italy
and Sweden (Fonte: Lobianco)
POST-INDUSTRIAL ECONOMY
PRE-INDUSTRIAL
ECONOMY
INDUSTRIAL
TRANSITION
ECONOMY
R elatio n b etw een C O 2 em issio n s an d G D P
I t a ly
Sw eden
me tric to n n s o f CO2 e mitte d e v e ry 1000 in h ab itan ts
 The EKC is the inverted U-shape
possibly
occurring
between
economic development (growth) and
environmental
degradation
(pollution). Starting from early ’90s,
such relation has been empirically
observed for some phenomena
mostly concerning air pollution (SO2,
NOX, CO, Particulate Matter) and
water pollution.
POLLUTION
I t - r e g r e s s io n
S w - r e g r e s s io n
C om m on regr.
3500
3000
2500
2000
1500
1000
500
0
0
5
10
15
K U .S . $ p e r c a p it a
20
25
30
11
Explanations of the EKC
 The validity of the EKC is still under empirical investigation for several cases of
pollution or environmental degradation. Nonetheless, it remains and interesting
hypothesis for two major reasons:
LET’S SEE
WHAT THEORY
SUGGESTS
 It rules out both “pollution of poverty” and “pollution of affluence” in favour of a
sort “pollution of transition”
 It is supported by sound theoretical justifications relating pollution with quantity
and quality of economic growth (economic growth uses E but also induces a
lower pollution intensity (E/Y)). Let’s see the fundamentals:
 CHANGE IN CONSUMER PREFERENCES: environmental quality can be viewed as a
good behaving as a substitute of material (conventional) goods (the latter are produced
consuming the former). At the same time, environmental quality behaves as a luxury (or
superior) good: its demand shows higher than 1 (and higher than material goods) income
elasticity. Therefore, the richer they are the more consumers want to replace material goods
with environmental quality.
 CHANGE IN THE TECHNOLOGY: as seen, economic growth typically occurs with a
decreasing per unit use of E due to two major reasons: firstly, technical change; secondly,
for the increasing “immateriality” of output (change in sectoral composition) as Y/E is
higher for material goods (e.g, steel) than for immaterial goods (e.g, bank services).
 CHANGE IN INSTITUTIONS: economic growth usually brings about an increasing
capacity of formal and informal political, social and economic institutions to pursue and
impose a more rational use of environmental resources.
12
Where do pollution “demand”
and “supply” come from?
UTILITY FUNCTION
U  f m, e, t 
(at time t)
m = material goods
e = pollutant emissions due to production
of m
PRODUCTION FUCTION
m  f tec, e, t 
m=
material goods
tec = techn. level (proxied by t)
e=
pollutant emissions
13
The development path
Emissions
Here it is, the EKC:
UTILITY MAXIMIZATION under PRODUCTION
(technology) CONSTRAINT
Material goods (GDP)
14
Contrasting effects
EARLY STAGES OF ECONOMIC
DEVELOPMENT: SCALE EFFECT
LATE STAGES OF ECONOMIC
DEVELOPMENT: COMPOSITION EFFECT
-> substitution effect (from A to B)
prevails on income effect (from B to C)
-> income effect (from E to F) prevails on
substitution effect (from D to E)
15
Poverty (LDC) vs. environment
 Unfortunately, for many different kinds of environmental degradation the
EKC does not seem to hold true. Not only because higher income does
not necessarily correspond to higher environmental performance. The
problem rather becomes that it is not necessarily true that low income
(pre-industrial economies, LDC) corresponds to high environmental
performance.
 On the contrary, several environmental emergencies of the last
decades stress the role of poverty as one of the major cause of
environmental degradation. It is the “poverty trap” underlying many
current global environmental issues:
“In LDC the major cause of environmental degradation is poverty and
the major cause of poverty is environmental degradation“
 In such cases, poverty and environmental degradation reciprocally reinforce:
to escape poverty populations make choices that destroy environmental
goods and, so doing, deplete the most important potential resources (the
agricultural and natural ones) on which their own development should be
based.
 Many can be the examples of such perverse mechanisms:
 “Land hunger”: deforestation, desertification, loss of biodiversity…
16
 Massive Rural-Urban migration: AIDS/HIV epidemic, water crisis, change of food habits…