THE DEMOGRAPHIC TRANSITION AND THE ECOLOGICAL TRANSITION: ENRICHING THE ENVIRONMENTAL KUZNETS CURVE HYPOTHESIS Marzio Galeotti (Universit à di Milano, IEFE -Bocconi ) Alessandro Lanza (Eni Corporate University S.p.A .) Maria Carla Ludovica Piccoli (Enel S.p.A .) This paper is about: (1) Environmental Quality/Degradation (2) Income/Economic Growth (3) Population These are fundamental aspects of Sustainable Development (SD) In this presentation I will briefly talk about: - (I) SD: alternative ways to represent the interrelations between (1)-(2)-(3) - (II) Literature on (1)-(2)-(3) and empirical results - (III) The two “Transitions” and this paper’s empirical results (I) Sustainable Development (SD) THE “CAPITAL” BASE OF SD Sustainable Development ∆(TK/POP)/ ∆T≥ 0 (+) (-) Km Total Kh capital Technological Change assets Population Growth TK Kn Ks THE POVERTY/POPULATION/ENVIRONMENTAL DEGRADATION “TRAP” Population increases Poverty increases Environment worsens THE KAYA IDENTITY GenerateGenerate incomeincome HumanHuman Consuming beingsbeings Consuming energyenergy (Population)(Population) And Pollution Pollution Energy Income Pollution = XX X Population Energy Income Population THE KAYA IDENTITY Wide differences between advanced countries and developing countries : the CO 2 case (*) CO CO 2 Energy Income GDP) 2 = x x Population Energy Income (GDP) Popolazione World 4.28 = 2.41 x 0.20 x 9.29 OECD 10.97 = 2.37 x 0.17 x 27.31 Latin America 2.21 = 1.85 x 0.15 x 8.06 Asia 1,35 = 2.11 x 0.17 x 3.86 Africa 0.92 = 1.40 x 0.27 x 2.48 China 4.58 = 3.08 x 0.19 x 7.65 “The effect on global emissions of the decrease in global energy intensity ( -33%) during 1970 to 2004 has been smaller than the combined effect of global income growth (77 %) and global population growth (69%) with the result of increasing energy - related CO2 emissions ” (WGIII contribution to the IPCC AR4, 2007). (*) Source: IEA 2009 Key World Energy Indicators – 2007 data WHY IS THIS HAPPENING? TWO STYLIZED VERSIONS 1. ConsumptionConsumption of of natural natural The cause of POPULATION resourcesresources pollution is population GROWTH WasteWaste discharge discharge growth 2. The cause of ECONOMIC Distorted lifestyles pollution is GROWTH Distorted lifestyles economic growth (II) Literature and Empirical Results 1. ENVIRONMENT AND POPULATION • Highly debated, yet comparatively under-researched empirically • Vast number of published articles on the link population - environmental changes appeared in the last few decades (Lutz, Prskawet, and Sanderson, 2002) • Particularly lacking are systematic empirical studies examining comprehensively the population-environment relationship at the global level Neo-Malthusians – Pessimists •Ever since Malthus, Ricardo and Mill, concern that rising population would deplete agricultural and other natural resources and significantly contribute to environmental degradation (Ehrlich, 1968; Meadows, Meadows, Zahn, and Milling, 1972). Neo- Malthusians like Ehrlich and Holdren (1971), Kahn, Brown, and Martel (1976) and Ehrlich and Ehrlich (1990) regarded population growth as a significant, if not the major, factor behind environmental degradation. 1. ENVIRONMENT AND POPULATION Cornucopians – Optimists •Boserup (1965) and later Simon (1981, 1996) argued instead that a rising population needs not lead to more depletion as high population densities provide fertile ground for institutional and technological innovations to overcome any apparent resource constraint. •Commoner, Corr, Stamler (1971) maintained that environmental degradation is not largely due to population growth. •The so-called cornucopians regard human ingenuity as the ‘ultimate resource’. Since more people mean that problems are tackled by more brains, a larger population renders more likely the scientific, technological and institutional progress necessary to overcome any apparent environmental problem. Although the issue can ultimately only be settled at the empirical level, the above contributions have been largely speculative. It was only in the mid-1990s that population was accounted for in the empirical work on the relationship between environmental quality/degradation and income. 2. ENVIRONMENT AND INCOME/ECONOMIC GROWTH The relationship between environmental degradation and income/GDP has been traditionally investigated within the framework of the so-called Environmental Kuznets Curve (EKC) . The EKC is an empirical description of the relationship between measures of economic growth and environmental quality After Simon Kuznets who in the 1940s = α +α +α 2 +α 3 y 0 1x 2 x 3 x empirically identified an inverted-U historic relationship between income distribution and income growth, dubbed “Kuznets Curve” Main idea : starting from low (per capita) income levels, (per capita) emissions or concentrations of pollutant tend to increase but at a slower pace. After a certain level of income (which typically differs across pollutants) – the “turning point” - emissions or concentrations start to decline as income further increases. 2. ENVIRONMENTAL KUZNETS CURVE: A SHORT DETOUR Two main explanations : • (1) Kuznets behavior is an income effect and results from the environment being a luxury good . Early in the economic development process of a country individuals are unwilling to trade consumption for investment in environmental protection: environmental quality declines as a result. Once individuals reach a given level of consumption (or income), they begin to demand increasing investments in an improved environment. • (2) EKC as an expression of “stages of economic growth ”. Countries make a transition from agriculture-based to industry and then post-industrial service-based systems. The transition from an agricultural to an industrial economy results in increasing environmental degradation as mass production and consumption grow. The transition from an industrial to a service- based economy is instead assumed to result in decreasing degradation due to the lower environmental impact of service industries. • Powerful implication : Delinking or Decoupling – Growth is both cause and cure of environmental problem. Press on the growth pedal. 2. ENVIRONMENTAL KUZNETS CURVE: A SHORT DETOUR • Underlying EKC there is a long-standing debate. In the early phases, about thirty years ago, the prevailing view was that economic growth was a threat to the environment. The world will not be able to sustain growth indefinitely without running into resource constraints or despoiling the environment beyond repair. No room for endless economic development, rather we should start thinking in terms of a zero-growth situation. This was primarily the view of a number of respected social and physical scientists belonging to the Club of Rome: The Limits to Growth (1972) • At the opposite extreme position according to which the fastest road to environmental improvement is along the path of economic growth: “The strong correlation between incomes and the extent to which environmental protection measures are adopted demonstrate that in the longer run the surest way to improve your environment is to become rich ” (Beckerman, 1992) 2. ENVIRONMENTAL KUZNETS CURVE: A SHORT DETOUR • EKC summarizes the empirical relationship between environment and economic development • Admittedly relationship very complex, depending upon a host of different factors, including: size of the economy, sectoral structure (including the composition of energy demand), vintage of the technology, demand for environmental quality, level (and quality) of environmental protection expenditures. All these aspects are interrelated. • Above considerations are the likely explanation of why this research field has been explored firstly on empirical grounds and only afterwards with the help of theoretical models. • Theoretical contributions belong to four major categories: - Optimal growth models - e.g. Tahvonen and Kuuluvainen (1994), Selden and Song (1995), Stokey (1998) - Models of the environment as a factor of production - Lopez (1994), Chichilinsky (1994). - Endogenous growth models - Lighthard and van der Ploeg (1994), Bovenberg and Smulders (1995, 1996), Stokey (1998). - Other macroeconomic models , include overlapping generation models – e.g. John and Pecchenino (1994) , Jones and Manuelli (2000), and simple static models – e.g. Stokey (1998), Andreoni and Levinson (2001) 2. ENVIRONMENTAL KUZNETS CURVE: A SHORT DETOUR • As noted by Shafik (1994), the above debate lacked empirical evidence to support one argument or the other, remaining on a purely theoretical basis for a long time. The main reason was the unavailability of environmental data for many years. However, it also reflected the difficulty of defining how to measure environmental quality. In the absence of a single criterion of environmental quality, several indicators of environmental degradation were used to measure the impact of economic growth on the environment. Obviously, the problem is that the use of various indicators implies the possibility of ambiguous answers of to the impact of growth on environment. • In a spat of initial influential studies, twenty years later the beginning of the debate Grossman and Krueger (1991, 1995), Shafik and Bandyopadhyay (1992), Panayotou (1993, 1995), Shafik (1994), Selden and Song (1994) provided first empirical implementation of the idea. 2. ENVIRONMENTAL KUZNETS CURVE: A SHORT DETOUR Lack of Lack of CO 2 SO 2 SPM NO X BO D/M SW Clean Water Urban Deforestation Sanitation Shafik and Bandyopadhyay (1992) Panayotou (1993) Grossman and Krueger