This special issue is concerned with environmental Kuznets curves (EKC) - the hypothesis that there is an ‘inverted-U’ relationship between various indicators of environmental degradation and levels of per capita income. Explanations as to why environmental degradation should first increase then decline with income have focused on a number of underlying relationships, including:

the effects of structural economic change on the use of the environment for resource inputs and to assimilate waste;

the link between the demand for environmental quality and income;

types of environmental degradation and ecological processes.

This short piece introduces the special issue on environmental Kuznets curves (EKC) — the hypothesized 'inverted-U' relationship between levels of environmental degradation and per capita income. Although the analysis of EKC relationships has been a relatively recent phenomenon, there is widespread interest on the part of academics in this analysis, and on the part of policymakers in the resulting implications for environment and development. The following introduction outlines the contributions to EKC analysis of the papers comprising the special issue. This is done in two ways: first, the empirical results of the special issue papers are compared with previous analyses of the EKC relationships; and second, the additional insights offered by the special issue papers on EKCs are discussed.

The environmental Kuznets curve (EKC) is an empirical regularity showing how some pollutants increase and then decrease with rising per capita incomes. Popular discussions and models of the EKC emphasize the role of the income elasticity of demand for environmental quality as a driving force for the inverted U-shaped relationship between income and pollutants. This paper explores the role of the income elasticity of demand for environmental quality by decomposing the reduced-form effect of income on pollution, showing that preferences consistent with a positive income elasticity of demand for environmental quality are neither necessary nor sufficient for the EKC. Increasing pollution may occur with increasing income but preferences that would imply a high income elasticity of demand for environmental quality, and decreasing pollution may occur simultaneous with preferences that put lower values on pollution reduction as incomes rise.

This paper examines the relationship between per capita income and a wide range of environmental indicators using cross-country panel sets. The manner in which this has been done overcomes several of the weaknesses asscociated with the estimation of environmental Kuznets curves (EKCs). outlined by Stern et al. (1996). Results suggest that meaningful EKCs exist only for local air pollutants whilst indicators with a more global, or indirect, impact either increase monotonically with income or else have predicted turning points at high per capita income levels with large standard errors – unless they have been subjected to a multilateral policy initiative. Two other findings are also made: that concentration of local pollutants in urban areas peak at a lower per capita income level than total emissions per capita; and that transport-generated local air pollutants peak at a higher per capita income level than total emissions per capita. Given these findings, suggestions are made regarding the necessary future direction of environmental policy.

Previous studies of the association between pollution and income have tended to analyse cross-sectional or panel data for a sample of developing and developed countries. This paper presents an analysis for a single country, Malaysia. This south-east Asian country has more, and probably better, data on environmental quality than perhaps any other developing country. I find that pollution–income relationships from the cross-country studies fail to predict accurately trends in air and water pollution in Malaysia. In particular, none of six pollution-income relationships estimated using a panel data set for Malaysian states has the hypothesized 'environmental Kuznets curve' form. Although these results are inconsistent with the predictions of the cross-country relationships, they make sense in the Malaysian context. Perhaps most important, their interpretation confirms the importance of policy decisions in determining environmental outcomes.

Considerable interest has focused on the possible existence of an environmental Kuznets curve, whereby pollution first increases but later falls with increasing income. Empirical studies have concentrated on a wide spectrum of countries and run into inevitable problems of data comparability and quality. We avoid these problems by looking at seven types of air emissions across the 50 US states and find all seven pollutants decrease with increasing per capita income. We also find strong evidence of heteroscedasticity with respect to the income–emissions relationship: lower-income states display much greater variability in per capita emission levels than higher-income states. Additionally, we look at the best measured of these emissions, air toxics, for the period 1988–94. Using a simple sign test, we find support for the notion that an increase in income is associated with a decrease in per capita emissions. However, the change in emissions appears to be unrelated to the magnitude of the change in income. We do find, though, that the reduction in per capita emissions is increasing both in terms of the 1988 level of per capita emissions and income. Possible implications of these results for the development process are discussed.

Environmental Kuznets curve (EKC) analysis links changes in environmental quality to national economic growth. The reduced form models, however, do not provide insight into the underlying processes that generate these changes. We compare EKC models to structural transition models of per capita CO2 emissions and per capita GDP, and find that, for the 16 countries which have undergone such a transition, the initiation of the transition correlates not with income levels but with historic events related to the oil price shocks of the 1970s and the policies that followed them. In contrast to previous EKC studies of CO2 the transition away from positive emissions elasticities for these 16 countries is found to occur as a sudden, discontinuous transition rather than as a gradual change. We also demonstrate that the third order polynomial 'N' dependence of emissions on income is the result of data aggregation. We conclude that neither the 'U'- nor the 'N'-shaped relationship between CO2 emissions and income provide a reliable indication of future behaviour.

The reduced-form approach to the income–environment relationship has been a useful first step towards answering the question of how economic growth affects the environment. However, without an explicit consideration of the underlying determinants of environmental quality, the scope for policy intervention is unduly circumscribed. In this paper a modest attempt is made to incorporate explicit policy considerations into the income–environment relationship and to explore its determinants as a step towards a better understanding of this relationship and its potential as a policy tool. The role of the rate of economic growth and population density is also explored. A main finding is that at least in the case of ambient SO2 levels, policies and institutions can significantly reduce environmental degradation at low income levels and speed up improvements at higher income levels, thereby flattening the EKC and reducing the environmental price of economic growth.

Environmental Kuznets curves have been estimated using a simple reduced-form model that gives no information on the mechanisms underlying the estimated inverted U-shaped relationship between some pollutants and income. Various intuitive appealing explanations for the observed patterns have been offered, such as structural changes and environmental policy, but these have rarely been empirically investigated. Expanding the reduced-form model with explanatory variables may introduce serious multicollinearity problems, a reason why decomposition analysis is a preferable alternative for investigating the origins of change in emissions. Applying decomposition analysis fails to find evidence for structural changes as an important determinant of the impressive reductions in SO2 emissions of developed economies during the 1980s. Environmental policy, fostered by international agreements, gives a better explanation why pollution curbs downward at high income levels. Besides the level of income, the present state of the environment seems an important, but often neglected, variable that explains the ambition of environmental policy.

This paper extends previous empirical studies of the environmental Kuznets curve by examining the role of rising incomes in promoting development of new technologies directed toward environmental improvements. The main result, based on an analysis of data from 19 OECD countries for the period 1980–94, shows that the income elasticity of public research and development funding for environmental protection is positive, and may be close to unity. This finding suggests that emissions of at least some pollutants may decline with income after a threshold level of income is reached. However, this should be interpreted cautiously in light of: (1) the small size of public research and development funding relative to overall spending on environmental protection, (2) the ability of a country to substitute between public and private research and development expenditures, as well as among alternative policy instruments, and (3) the possibility that public research and development funding may be a form of industrial subsidy in some countries.