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.

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.

Systems linking people and nature, known as social-ecological systems, are increasingly understood as complex adaptive systems. Essential features of these complex adaptive systems – such as nonlinear feedbacks, strategic interactions, individual and spatial heterogeneity, and varying time scales – pose substantial challenges for modeling. However, ignoring these characteristics can distort our picture of how these systems work, causing policies to be less effective or even counterproductive. In this paper we present recent developments in modeling social-ecological systems, illustrate some of these challenges with examples related to coral reefs and grasslands, and identify the implications for economic and policy analysis.

This paper examines the impact of climate change on rich and poor countries across the world. We measure two indices of the relative impact of climate across countries, impact per capita, and impact per GDP. These measures sum market impacts across the climate-sensitive economic sectors of each country. Both indices reveal that climate change will have serious distributional impact across countries, grouped by income per capita. We predict that poor countries will suffer the bulk of the damages from climate change. Although adaptation, wealth, and technology may influence distributional consequences across countries, we argue that the primary reason that poor countries are so vulnerable is their location. Countries in the low latitudes start with very high temperatures. Further warming pushes these countries ever further away from optimal temperatures for climate-sensitive economic sectors.

We develop and apply a consistent and comprehensive theoretical framework for assessing whether economic growth is compatible with sustaining wellbeing over time. Our approach differs from earlier approaches by concentrating on wealth rather than income. Sustainability is demonstrated by showing that a properly defined comprehensive measure of wealth is maintained through time. Our wealth measure is unusually comprehensive, capturing not only reproducible and human capital but also natural capital, health improvements and technological change. We apply the framework to five countries: the United States, China, Brazil, India and Venezuela. We show that the often-neglected contributors to wealth – technological change, natural capital and health capital – fundamentally affect the conclusions one draws about whether given nations are achieving sustainability. Indeed, even countries that display sustainability differ considerably in the kinds of capital that contribute to it.

Based on observations from all three tropical continents, there is good reason to believe that poor service providers can broadly gain access to payment for environmental services (PES) schemes, and generally become better off from that participation, in both income and non-income terms. However, poverty effects need to be analysed in a conceptual framework looking not only at poor service providers, but also at poor service users and non-participants. Effects on service users are positive if environmental goals are achieved, while those on non-participants can be positive or negative. The various participation filters of a PES scheme contain both pro-poor and anti-poor selection biases. Quantitative welfare effects are bound to remain small-scale, compared to national poverty-alleviation goals. Some pro-poor interventions are possible, but increasing regulations excessively could curb PES efficiency and implementation scale, which could eventually harm the poor. Prime focus of PES should thus remain on the environment, not on poverty.

This paper is about net national product (NNP). We are concerned with what NNP means, what it should include, what it offers us and, therefore, why we may be interested in it. We show that NNP, properly defined, can be used to evaluate economic policies, but we also show that it should not be used in any of its more customary roles, such as in making intertemporal and cross-country comparisons of social well-being. We develop such indices as would be appropriate for making those comparisons. In particular, we show that welfare comparisons should involve comparisons of wealth. Writings on the welfare economics of NNP have mostly addressed economies pursuing optimal policies, and are thus of limited use. Our analysis generalises this substantially by studying economies whose governments are capable of engaging only in policy reforms. We show how linear indices can be used for the evaluation of policy reform even in the presence of non-convexities in the economic environment. The analysis pertinent for optimising governments are special limiting cases of the one we develop.

The literature on green NNP has widely interpreted NNP as ‘constant-equivalent consumption’. We show that this interpretation is wrong. It is the Hamiltonian that equals constant-equivalent utility. Since both theory and empirics imply that the Hamiltonian is a non-linear function of consumption and leisure, the Hamiltonian should not be confused with NNP.

The environmental Kuznets curve (EKC) hypothesis proposes that there is an inverted U-shape relation between environmental degradation and income per capita. This has been taken to imply that economic growth will eventually redress the environmental impacts of the early stages of economic development. The literature on this issue has developed rapidly over the last few years. This paper examines whether progress has been made on both understanding the EKC phenomenon and on addressing the various criticisms raised against some of the empirical studies and their interpretation in the policy literature. Though basic EKC studies continue to be carried out, recent work has focused on the effect of a variety of conditioning variables on the environmental impact-GDP relationship. Some attempts have also been made to examine the history of the relationship in individual countries. The econometric techniques used have improved. However, empirical decompositions of the EKC into proximate or underlying causes are either limited in scope or non-systematic, and explicit testing of the various theoretical models has not yet been attempted.

This paper discusses the factors guiding household choices of cooking fuels. This is crucial for policies to combat indoor air pollution. Household income is an important, but not the only, factor. Opportunity costs of firewood also play an essential role. Empirical results are based on the 2000 Guatemalan LSMS survey, which includes a detailed section on energy use. Patterns of fuel use, energy spending, Engel curves, multiple fuels, the extent of fuel switching, and the determinants of fuel choice are analyzed.

It is common in Guatemala to use multiple fuels for cooking – 48 and 27 per cent of urban and rural households do so. Modern fuels are often used alongside traditional solid fuels; modern fuels thus fail to displace solid fuels in many cases, particular in rural areas and the urban bottom half. This is paradoxical since a significant share of firewood users buy wood from the market, incurring costs that are substantial, also in comparison with the costs of modern fuels.

The purpose of this study is to test empirically the hypothesis of the inverted U-shaped relationship between environmental damage from sulfur emissions and economic growth as expressed by GDP. Using a large database of panel data consisting of 73 OECD and non-OECD countries for 31 years (1960–1990) we apply for the first time random coefficients and Arellano-Bond Generalized Method of Moments (A–B GMM) econometric methods. Our findings indicate that the EKC hypothesis is not rejected in the case of the A–B GMM. On the other hand there is no support for an EKC in the case of using a random coefficients model. Our turning points range from $2805–$6230/c. These results are completely different compared to the results derived using the same database and fixed and random effects models.

The relationship between per capita income and a number of pollution indicators has been found to display an inverted U-shaped or downward-sloping pattern. Corruption may affect this relationship in two distinct ways: by raising pollution at given income levels (direct effect) and by reducing per capita income (indirect effect). The total effect is ambiguous a priori. Using cross-section data for several indicators of pollution, the paper estimates the direct and the indirect effect of corruption on pollution. The indirect effect via income is positive or negative depending on the income level. If negative, the indirect effect is dominated by the positive direct effect. Overall, our measures of pollution are monotonically increasing in corruption. Because this relationship is particularly strong at low income levels, developing countries can considerably improve both their economic and environmental performance by reducing corruption.

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.

This paper examines the role forests play in alleviating poverty in rural Malawi. Data from three villages in southern Malawi indicate high levels of forest dependence. Gini decomposition shows that access to forest income reduced measured income inequality at the study sites. Tobit analysis of the determinants of reliance on low-return and high-return forest activities indicates that asset-poor households are more reliant on forest activities compared with the better off; reliance on high-return activities is conditioned also by availability of adult male labor and location. Taken together, the study's findings suggest that forests prevent poverty by supplementing income, and may also help to improve the living standards of households that are able to enter into high-return forest occupations. Policy implications are discussed.

This special issue results from a call for papers to address the connection between resilience and sustainability, and stems from the fact that the ecological concept of resilience has been exercising an increasing influence on the economics of development. Resilience is interpreted in two different ways by ecologists: one capturing the speed of return to equilibrium following perturbation (Pimm, 1984), the other capturing the size of a disturbance needed to dislodge a system from its stability domain (Holling, 1973). The latter may be interpreted as the conditional probability that a system in one stability domain will flip into another stability domain given its current state and the disturbance regime (Perrings, 1998). The relevance of this concept for the problem of sustainable economic development has been recognized for at least fifteen years (Common and Perrings, 1992). Indeed, Levin et al. (1998) claimed that resilience is the preferred way to think about sustainability in social as well as natural systems, and a research network – the Resilience Alliance – has subsequently developed around the idea.

A number of recent papers have found that certain measures of pollution worsen and later improve as income per head increases. It is widely believed that the downhill portion of this inverted-U curve reflects an induced policy response; that, as incomes rise, citizens demand improvements in environmental quality, and that these demands are delivered by the political system. In this paper we find that, for a number of pollution variables, an increase in civil and political freedoms significantly improves environmental quality. For other pollution variables, however, we find that freedoms have no effect. The former finding suggests that political reforms may be as important as economic reforms in improving environmental quality worldwide. The latter finding hints that the observation that pollution levels fall with income, once income becomes high enough, may not always reflect an induced policy response.

In this paper we examine the influence of foreign direct investment (FDI) inflows on energy intensities of developing countries empirically. We first replicate a simple ordinary least squares (OLS) estimation, as it is found in the literature, that suggests energy-intensity reductions from FDI inflows. However, the OLS estimation turns out to be spurious and only a starting point for further research. In our regressions we use macro-level panel data on 60 developing countries for the period 1975–2004, including other potential determinants of energy intensities, and carry out robustness checks with more specific data. The results do not confirm the hypothesis that aggregate FDI inflows reduce energy intensity of developing countries. Rather, foreign development aid seems to be related to energy efficiency gains.

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.

This paper examines the complex relationship that exists between poverty and natural resource degradation in developing countries. The rural poor are often concentrated in fragile, or less favorable, environmental areas. Consequently, their livelihoods can be intimately dependent on natural resource use and ecosystem services. The relationship between poverty and natural resource degradation may depend on a complex range of choices and tradeoffs available to the poor, which in the absence of capital, labor, and land markets, is affected by their access to outside employment and any natural resource endowments. The paper develops a poverty–environment model to characterize some of these linkages, and concludes by discussing policy implications and avenues for further research.

This paper examines the role of the financial sector in renewable energy (RE) development. Although RE can bring socio-economic and environmental benefits, its implementation faces a number of obstacles, especially in non-OECD countries. One of these obstacles is financing: underdeveloped financial sectors are unable to efficiently channel loans to RE producers. The influence of financial sector development on the use of renewable energy resources is confirmed in panel data estimations on up to 119 non-OECD countries for 1980–2006. Financial intermediation, in particular commercial banking, has a significant positive effect on the amount of RE produced, and the impact is especially large when we consider non-hydropower RE such as wind, solar, geothermal and biomass. There is also evidence that the development of the RE sector has picked up significantly in the period since the adoption of the Kyoto Protocol.

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.