Low-Energy Fridays: Pollution and Economic Growth

Here is a question worth pondering: Does economic growth make the environment worse? Some would say yes, because as the economy grows, so too does consumption and the commensurate environmental footprint. But others would say no, because as people become richer, their willingness and ability to offset the environmental harm from their consumption increases. This fundamental difference in philosophy might seem minor, but it influences a much broader question of what sort of climate and energy policies make sense and whether economic growth and environmental conservation are in tension, as one notable climate activist suggests.

We know that consumption entails some sort of environmental tradeoff in almost all cases, but the important thing to keep in mind is that the level of environmental harm from consumption is always changing. When observing data on pollution, we see that consumption—particularly energy consumption—can rise substantially while associated pollutants simultaneously fall. One good example of this is food production. We’ve gotten far better at producing more food with less land and fuel, so the environmental harm that comes from something as simple as eating is far lower today than in years past. Another example is air pollution from car travel. While vehicle miles traveled are much higher than ever before, pollution is much lower.

This phenomenon is explained by simple economic philosophy: People value environmental quality, but it is typically not at the top of their spending priorities. If someone is only willing to devote 1 percent of their income to environmental outcomes, that willingness to pay is much higher for someone making $100,000 per year than someone making $10,000. While it is possible to reduce the pollution associated with consumption, some of that abatement comes naturally from productivity improvement, and some of it requires a cost that consumers (or the public) are willing to pay.

This is not just theory—it is observable in data. C3 Solutions compared the economic freedom of nations to their environmental quality and found that freer markets, which are usually richer economies, also maintain a much higher environmental quality than their centrally managed, often poorer peers. This comports with exactly what free marketeers would expect regarding the environment: If consumers are able to express their preference for environmental improvement and have the funds to direct toward that preference, then the market will satisfy that outcome (the invisible hand, so to speak).

The topic is still debated with some intensity. One possible explanation is something called the “environmental Kuznets curve,” which posits that, as noted above, after wealth reaches a certain point, pollution starts to decrease rather than increase. Critics of such theories say these phenomena are explained by modeling errors and/or economies shifting from manufacturing to services. But at least two papers examining the carbon intensity of production in specific industries across countries found that the United States and other developed (again, mostly free market) economies can produce the same volume of product with far less pollution.

The debate is important because if the pro-economic growth camp is correct, then an environmental benefit can be lost from economically constraining policies. Attempts to restrict consumption as recommended by movements like  “keep it in the ground” or “degrowth” inadvertently forfeit the environmental benefits a richer populace can provide—meaning they would create a world where people are poorer, and perhaps the environment would not even be cleaner for it. The topic demands more words than can be put here, but suffice to say the data indicate that economic growth is not the climate enemy, and it is indeed possible to improve human welfare and reduce global poverty without sacrificing the environment.