Fig. 1: Environmental Kuznets Curve. (Source:
Yandle, Vijayaraghavan and Bhattarai, 2002)
Air Pollution in China
Tuesday, 28 February 2017
The Environmental Kuznets Curve, pt. 1
One of the first theories that I have
encountered in environmental economics is the Environmental Kuznets Curve. In
this and the next post, I would like to summarise my understanding and thoughts of it so far.
In the 50s, economist Simon Kuznets
proposed a hypothesis that as per capita income increases, income inequality
also rises at first, but starts falling after a certain turning point. This relationship
can be represented by an inverted U-shaped curve, known as the Kuznets Curve.
In the 90s, the Kuznets Curve found new application in the environmental studies,
when several studies provided evidence that environmental quality, as measured
by the concentration of some pollutants, deteriorates initially at low levels
of per capita income and then improves at higher levels (see Fig. 1). Because
of its resemblance to the original Kuznets Curve, this relationship was given
the name the Environmental Kuznets Curve (EKC) (Yandle, Vijayaraghavan andBhattarai, 2002).
Since then, the EKC has become a common
feature in the literature of environmental policy. While the empirical branch
of the literature has sought for similar patterns for additional indicators of
environmental quality, theoretical research has proposed a number of theoretical
explanations for an inverse U-shaped pollution-income relationship, with focus
on the descending branch of the curve.
First, as economic development progresses,
structural changes take place where pollution-intensive industries are replaced
by information-intensive industries and services. Structural changes of
advanced economies are accompanied by the export of pollution-intensive
industries to less-developed economies, where environmental regulation is less
stringent, known as the pollution haven hypothesis. This also suggests the
influence of trade on the distribution of pollution. (Alstine and Neumayer, 2010).
Here lies a major criticism of the EKC, as the least-developed countries would have
nowhere to outsource their pollution, meaning that the EKC is not indefinitely
replicable (Andreoni and Levinson, 2001).
A second theory is based on the idea of
income elasticity. At low levels of income, the income elasticity of demand is
high for sustenance and low for environmental amenities. As income rises, the
income elasticity of demand for environmental quality also increases. At
certain threshold, it becomes greater than 1 and environmental quality is a
luxury good. Yandle, Vijayaraghavan and Bhattarai (2002) argue that this market
phenomenon stems from fundamental changes in institutions. For instance, “the
movement along an EKC is also a movement through a well-known set of property
rights stations”, i.e. the environment shifts from a commons to a private
property, which gives people more incentives to manage and conserve it.
At this point, it is worth mentioning
another criticism regarding the universality of the EKC. It has been found to
be applicable to only certain types of pollutants such as SO2 and nitrogen
oxides which cause mostly localised environmental problems. Conversely, in the
case of CO2, “the evidence is at best mixed”(Galeotti, Lanza and Pauli, 2005),
as it is a global pollutant that involves cross-border externalities. No
country has sufficient incentive to internalise these externalities, creating a
not-in-my-backyard situation (Levinson, 2002). This again highlights the need
for more advanced institutions that facilitates multilateral cooperation, for
example the Paris Agreement.
In conclusion, I believe it is vitally
important to note that the EKC does not suggest that developing countries
should just follow the old path of “grow (pollute) first and clean up
afterwards”(as it might appear at first glance). But quite on the contrary, the
aforementioned theories and criticisms surrounding this hypothesis suggest that
economic growth alone does not solve environmental problems. Improvement of the
environment relies on good policies and institutions which have the potential
to help flattening the curve and achieving an earlier turning point.
Friday, 25 November 2016
“Smog Economics”- How Much Does It Cost to Clean up China’s Air?
On high pollution days, a question that
often makes me scratch my head is whether I should go out for lunch or have it
delivered. If I go out (to nearby places by foot), I’d breathe in the hazardous
air. (Many places are now equipped with air purifiers, which can more or less
reduce the pollution indoors.) If I order a takeout, it usually comes with
excessive packaging. Also, the courier service would emit extra pollutants,
which could have been avoided, if everyone would give up on takeout food. Even
an ordinary person ponders over the choice of personal health and that of environmental
protection, it is little wonder that policymakers seem rather hesitant to act.
Probably the most crucial question that they ask themselves and their think
tanks is how much it will cost to clean up China’s air.
I’ve derived the title of this post from
the term environmental economics. The
impacts of smog on China’s economy are far more profound than the booming
markets of masks and air purifiers. In fact, they manifest themselves in resource
prices, industrial economics and macroeconomic statistics. For policymakers and
economist, there is no getting around it.
Economist Fang Sihai revealed in 2013 that he
considered environmental governance, as represented by air pollution control,
as the second most important variable when forecasting the short-term trend of
China’s economy. He predicted a 0.5% slowdown of economic growth for 2014. The
real GDP growth in 2014 was 7.4%, 0.3% lower than that of the previous year. Most
affected by environmental governance are those energy-,pollution-
and emission-intensive industries.
Also in 2013, Wang Jinan, deputy director
and chief engineer at the Chinese Academy for Environmental Planning (CAEP) of
the time, estimated that the Action Plan on Prevention and Control of Air
Pollution (mentioned in a previous post, hereafter referred to as the Action
Plan) would restrain the growth of the steel, cement and coke industries,
causing 81.2, 16.7 and 14.2 billion RMB loss respectively. Eliminating backward
productivity would cause a total GDP loss of 114.8 billion RMB as well as the
loss of 140 thousand jobs. According to a more recent study (published in 2015)
made by CAEP and the Clean Air Alliance of China, eliminating backward
productivity would cause a total GDP loss of 776.3 billion RMB and the loss of
892 thousand jobs in the five-year implementation period (2013-2017).
Redistribution of resources promotes the adjustment
and upgrading of the industrial structure. By contrast to the traditional
energy-,pollution- and emission-intensive industries,
agriculture, forestry, the transportation equipment manufacturing industry etc.
could benefit from the environmental governance and become new growth points.
Also according to the 2015 study, the Action Plan would drive GDP growth of
2.04 trillion RMB and increase 2911 jobs. The direct investment required was
estimated to be 1.84 trillion RMB, thus resulting in an input-output ratio of
1:1.11-a close tie.
It is worth noting that air pollution
control would also lead to considerable health benefits, which were not
included in this calculation. And even if the input were higher than the
output, would it be legitimate to take no action at all? Here lies my concern
about environmental economics in general: environmental problems are often
characterised by their longevity, complexity and comprehensiveness. How do we monetise
such things that we do not fully understand? I understand that efforts must be
made, but it should not become our only criteria when making a decision.
Monday, 21 November 2016
Greetings from Beijing
Dear readers,
To make a long story short, I’m back in the
blogging business XD
How time flies-it’s been more than 10
months since I wrote the last post. During this time, I completed my Master’s
programme at UCL and moved to Beijing. I am now doing a part-time job and
another internship in an environmental NGO, whilst looking for other
opportunities.
I had been studying abroad for the past
four years and was only back during summer vacations. Air pollution was
something that I constantly read or heard about, but not something that I actually experienced. I mean before 2012, I was-like most Chinese-unaware of the issue. Therefore, in
these last two months in Beijing, it still frequently strikes me how bad the
situation is.
For a glimpse-central heating in Beijing started last Saturday. On Wednesday, the government issued an orange alert (the second highest in a four-tier ranking system) for heavy air pollution over three consecutive days and advised residents to limit outdoor activities. This is a picture I took near my work place on Friday and the real-time air quality data from the nearest monitoring station:
For a glimpse-central heating in Beijing started last Saturday. On Wednesday, the government issued an orange alert (the second highest in a four-tier ranking system) for heavy air pollution over three consecutive days and advised residents to limit outdoor activities. This is a picture I took near my work place on Friday and the real-time air quality data from the nearest monitoring station:
Not only am I now breathing the reality, I also get to be more exposed to the more practical aspects of the problem through my internship, as one of the main campaigns that the NGO for which I’m working is to reduce sources of air pollution in China, by lobbying for China to move from coal to renewable energy. Therefore, I would like to continue using this blog to record what I see and hear, and hopefully, as I progress, what I think.
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