Economic growth and pollution in the long run: the case of carbon dioxide

The concept underpinning the Environmental Kuznets Curve is that economic growth results in reduced pollution in the long run. In this report, an extension of Andreoni and Levinson’s (2001) theoretical model is presented. It demonstrates that an Environmental Kuznets Curve relationship can occur because high incomes allow more adoption of low-emission technologies at higher income levels. Evidence on the determinants of carbon dioxide emissions changes for OECD countries over the period 1961-2004 is presented. It highlights the importance of technology adoption in explaining whether countries have achieved emissions reductions at the same time as experiencing long-run economic growth. However, it is shown that technology adoption is affected by policy decisions and other factors in addition to income level. Hence the Environmental Kuznets Curve hypothesis is more appropriately framed as a conditional relationship.