Reconsidering the Environmental Kuznets Curve hypothesis: the trade off between environment and welfare

Past climate change literature paid great attention to the welfare analysis of international agreements that stabilize emissions over time on the basis of the New Welfare Economics approach claiming “objective” measures of well-being and excluding interpersonal comparisons. In this paper, by using non New Welfare Economics approaches we show that the involvement of developing countries is not a desirable policy option. The implementation of a “Kyoto for ever” scenario including only developed regions could be recommended because improves both environment and welfare also if it does not generate a turning point in the relationship between income and pollution (PIR). The Environmental Kuznets Curve hypothesis (EKC) implies that a bell shaped PIR would induce policy-makers to pursue economic growth in order to overcome the air pollution issue. This normative prescription crucially focuses on the role played by the existence of a turning point in a context where only two sustainability dimensions are important: the economic and the environmental one. Our analysis shows that when we introduce a welfare analysis, policy implications based only on the turning point existence and consequently on the Environmental Kuznets Curve hypothesis could be misleading. In our study a “win-win” policy as the Kyoto Protocol is recommended because the existence of a turning point could be heavily paid in terms of welfare. However results are sensitive to the choice of the welfare measure.