A Law and Economics Approach to Climate Change Regulation in California Using the Environmental Kuznets’ Curve

The relationship between desirable economic growth and environmental degradation is complex. The international community began to negotiate responsibility for the issue of global climate change twenty-one years ago. This paper suggests that the environmental Kuznets' hypothesis may provide a useful model for predicting future regulatory developments. The Environmental Kuznets' hypothesis suggests that as incomes increase, pollution increases at a decreasing rate. In other words, as wealth increases, so does the demand for a less polluted environment. In addition to income, researchers have hypothesized that other exogenous variables may influence the level of emissions. These other variables include (1) the price of energy, (2) population density, (3) income inequality, (4) literacy, and (5) an index of political rights and civil liberties of the population. These other variables will shift the relationship between emissions and income up or down, and, to the degree that these other variables interact with income, they shift the relationship to the left or to the right. In a study using a panel of 100 countries for the period 1960 to 1996 and examining the environmental Kuznets curve for CO2 and GDP per capita researchers found no shift in the relation over time and no downturn in CO2 emissions per capita as GDP per capita increased. However, notably missing from the list of other exogenous variables is an examination of the effects of economic freedom on emissions. Economic freedom consists of a variety of elements including the existence of private property rights, lack of tariff barriers, low government consumption and taxes, stable monetary policies, the rule of law, absence of a military draft, no interest rate controls, open banking system and few state-owned enterprises