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Is Richer Greener?

Jonathan's fine post reminds us that some of the gloom-and-doom predictions of people like Paul Ehrlich have proven false, and that it is just as easy to exaggerate the problem of environmental degradation as to neglect it. But in rereading Tierney's column and some of his other work, I realized that Tierney's reporting on the environmental Kuznet's curve repeatedly makes a serious error. I don't know whether Jonathan has made the same error or not—not explicitly if he did—but it is worth explaining.

As Tierney describes it, the EKC describes a recurrent—but not universal—pattern where increasing wealth in a country is not (as Ehrlich predicted) correlated with increasing environmental degradation; instead, the emission of at least some types of pollutants and activity that causes other forms of environmental degradation flatten out and decline as wealth increases. Tierney observes this pattern and leaps to the conclusion that we needn't worry too much about global warming and other pollution problems because eventually the flattening out will occur in these cases as well. (And, indeed, he cites empirical research that shows a long-term reduction in carbon per unit of energy.)

But as Jonathan's examples make clear, the reason for this pattern has nothing to do with the problem of pollution properly understood—as a problem of negative externality. Consider the example of the saw blades. A firm that owns a patch of timber rationally switches from thicker to thinner saw blades because thinner saw blades waste less wood. If demand remains constant, then the firm will destroy fewer trees than in the past. In this way, technological development reduces what Tierney calls "environmental impact."

But in this example, environmental impact is purely internalized. When a firm can produce output with a new technology that wastes fewer inputs, it will do so. Happily for the rest of us, the extra trees may absorb some greenhouse gases, but that was certainly not the goal of the firm. It just happens that in this particular setting a firm's profit-maximizing decision to switch to a new technology benefits other people.

But this example reflects contingency only. Why would a profit-maximizing firm care about benefiting the rest of us? Indeed, it will surely destroy more trees than is optimal from the social standpoint since it does not internalize the full social benefit. But Tierney is not comparing the current level of forestation with the optimal level; he is comparing it with a level that existed at an arbitrarily chosen earlier period. Suppose now that a still newer saw blade technology will be even more efficient for the firm, but the manufacturing process needed to produce it generates loads of greenhouse gases. The firm will switch to this technology even though the social costs may be greater than the social benefits (in the form of cheaper wood, more trees, etc.).

I can see only two possible explanations for the EKC. The first is the one I provided in my earlier post: that as people become wealthier, they become more willing to pay for regulation that reduces pollution. (Wealthier people may also be able to demand and secure better governmental institutions that will reliably translate their preferences into outcomes.) The second is that, given our system of incomplete property rights that fails to internalize all positive and negative externalities, it is not surprising that technological change sometimes has positive effects on the environment (a new technology exploits inputs more efficiently, benefiting both the user who needs to pay for fewer inputs and third parties who suffer from less pollution), and sometimes has negative effects on the environment (a new technology benefits a user because it results in more waste being externalized on other parties). Julian Simon won his famous bet with Paul Ehrlich because it turns out that technological development frequently does outpace demand for resources, but Simon never claimed that it follows that we shouldn't tax activities that cause pollution—because it doesn't!

It is certainly possible that the first theory applies to carbon use. Fuels that generate energy alone rather than energy plus a bundle of harmful pollutants will, all else equal, provide greater benefits to those who use them because they get more energy for the buck. The long-term trend toward greater energy efficiency thus can be attributed, in part or even in whole, to market incentives, which have caused energy users to switch from less efficient (expensive) to more efficient (cheaper) sources of energy. But because these energy users care about clean energy only to the extent that it reduces their own costs, and not to the extent that it reduces costs for third parties, this process has occurred too slowly, and so government intervention is warranted.

I fear that people like Tierney have fallen prey to the notorious selection effect. They are looking for examples where environmental degradation has receded (forestry) rather than increased (the atmospheric commons, the ocean fisheries), and then, implicitly, saying that the happy outcomes in the first case mean that we shouldn't care about the bad outcomes in the second. Of course, that is wrong. Where technological change causes people to use their property rights in a way that benefits rather than harms other people, obviously there is no or little reason for government intervention. But where it has the opposite effect, there is. The existence of the first phenomenon does not imply that the second phenomenon does not exist.

A final point. The phrase "richer is greener" may be a reasonable description of the world, but I don't think it has any implications for policy. If some activity produces pollution, the usual prescription is to tax it so that the marginal cost of the activity equals the marginal benefit. The producer should stop the activity at the point at which an additional unit hurts society more than it helps it. The "richer is greener" slogan may seem to imply that in fact we shouldn't tax this activity. The tax will make us poorer—consumers pay more and shareholders receive less. If the tax is not imposed, we'll be richer and therefore (?) greener.

But the goal of social policy is not to make us richer but to make us better off, and when we prefer clean air over extra money, then the tax is justified. The only way I can make sense of the slogan is as a claim that richer people care more about the environment and voluntarily cut back on consumption, buy more green-friendly goods, and so forth; over the long term, more rich people mean a cleaner environment. As I noted before, rich people cause more environmental harm than poor people do. A McMansion uses more energy than a small apartment with leaky windows; a Prius uses more energy than a seat on a bus. But even if this claim were true, by hypothesis, the richer people are worse off than they would be if the tax had been imposed—they are actually poorer in a well-being sense as opposed to a monetary sense. Indeed, if the story about their preferences is true (and I remain skeptical), they will spend a lot of the money they save on taxes by traveling to places with clean air, purchasing oxygen supplies, and so forth, so they may be poorer rather than richer. I suspect that the story is a lot simpler here. In countries where people get their act together and manage to create and sustain high-quality institutions, these institutions (functioning court systems, non-corrupt legislatures, and so forth) adopt socially beneficial policies—including policies that both enable people to accumulate wealth and constrain activities that cause environmental harm.

Laura(southernxyl) (mail) (www):
To pick a minor nit:

"Happily for the rest of us, the extra trees may absorb some greenhouse gases, but that was certainly not the goal of the firm."

I don't think you can say "certainly". There are companies whose owners, in addition to making money, want to be environmentally responsible wherever possible. In fact, back in the '90's I worked for a chemical company whose home office had everyone switch to recycled paper. It was a bit more expensive and not necessarily as blindingly white as the paper we'd been using, but they did that at the same time as they had us recycle our coke cans at lunch and so on. They met and exceeded their Clean Air Act mandates at the chemical plants ahead of time, too. I think they really bought into the "Responsible Care" and "good corporate citizen" thing.

I enjoyed working there.
4.25.2009 12:58pm
Ken Arromdee:
As I noted before, rich people cause more environmental harm than poor people do. A McMansion uses more energy than a small apartment with leaky windows; a Prius uses more energy than a seat on a bus.

This really isn't considering the indirect effects, though. A rich person's house may have a big impact on the environment. But the fact that a society has a lot of rich people means it can advance technologically, leading to factories using more efficient processes, companies able to plan for the future because the society respects property rights, etc. This benefits the environment--and it goes on the balance sheet for the rich person, up against his big house.

I'll also add that if you ask "why would a profit-maximizing corporation care about us" you have to ask "why would a profit-maximizing bureaucrat care about us" when suggesting that taxes be raised.
4.25.2009 1:46pm
gattsuru (mail) (www):
I think you neglect a third option: that pollution is by its very <i>nature</i> wasteful -- you can not produce matter and send it into nature, or remove matter from nature, without spending time, energy, manpower, or other efforts on the item without getting the most from it. Carbon dioxide usually means you're wasting fuel, carbon, and oxygen. You may insist that natural prices do not properly measure the true costs of this pollution (I believe there are issues with other forms of calculation), but there are always economic reasons to aim for more efficient production.

I think you also neglect a flaw in the nature of your argument regarding regulation in the form of taxation: taxes (especially those prompted by the beliefs of non-experts) do not inherently cause a better alternative to exist or even be possible. My company, for example, requires the use of a civilian aircraft capable of 10 hours of sustained flight for its purposes. There are no ifs, ands, or buts about this; we could no more change this than we could defy gravity unassisted. There are no non-gasoline alternatives, and none likely to be available within your lifetime.

No matter what the tax on fuel is, my company or its customers will be paying that tax, or we will go out of business.
4.25.2009 1:53pm
DavidBernstein (mail):
"As I noted before, rich people cause more environmental harm than poor people do."

Do you think "the environment" would be better off if all 8 million people in NYC were living as their forebears did 200 years ago, burning coal and getting around by horse and buggy? Just the manure residues, much less the coal, would make it impossible to leave the house without a mask. Not to mention all the firewood that would be burned, animals living in people's houses, dirty drinking water, and so forth. Only if you think the threat of man-made global warming is much greater than the every day environmental threats people lived with years ago can one say that wealth is bad for the environment.
4.25.2009 2:03pm
einhverfr (mail) (www):
There is a second problem too with the whole EKC idea as it is put forth in the article you reference: NIMBY. I think there is an alternate case for EKC, but not this one.

Wealthier countries are far more likely to export localized pollution problems to less wealthy countries where the population sees an economic benefit to fewer environmental restrictions. Hence in some parts of China today, we see amazing localized pollution in particulates, etc. from coal. We don't want the cost here. Someone else exchanges that cost for money, etc.

Hence environmental impact can be seen as the cost of consumption, where consumption is proportional to affluence, and where the cost is inversely proportional to the minimal level of acceptable regulation in this matter. The sum impact could thus be represented as (Population * Affluence) / (Concern * technology).

A second problem is that technology isn't uniform in how it contributes to or solves problems. For example, people speak of carbon sequestration in coal-fired power plants, but even if that works and we are willing to pay the cost, it only affects areas where our only interest is getting energy by burning carbon. There are many other uses for coal where this is less clear-cut. For example, in steel production, the complexity of sequestering carbon dioxide given all the inputs and outputs is substantially higher. With that complexity necessarily comes cost. Blast furnaces also represent another case where it is unclear how effective carbon sequestration could be. But we can't produce steel without burning carbon!

So the key issues are consumption and efficiency. Recycling, for example, hits the efficiency end of the equation. Looking for key places to do methane composting and harvesting from farms would hit efficiency as well.

One thing running against this equation is that localized pollution tends to be more rapidly reacted against than global problems. For example, counties might prevent you from heating your house with wood, requiring you to use electricity from coal-fired plants.

However......

The revolution in green energy has already begun if we look at the consumption side. Hybrid cars are a good example. Hybrid fuel cell vehicles running on biodiesel would be even better (though there are technological hurdles to make that happen).

When we look at power generation, there are also major breakthroughs occurring at the moment. The ability to turn sewage treatment facilities into potential fuel production plants has recently had some scientific progress and has received backing of giants like Boeing.

Back to the EKC stuff... One could argue that as the global economy modernizes that consumption will peak as the global population peaks and then starts to decline (estimated to occur within the next century). I am not convinced that this will happen but all the efficiency gains that go into things NOW will help then too.
4.25.2009 2:19pm
John Moore (www):

The phrase "richer is greener" may be a reasonable description of the world, but I don't think it has any implications for policy.


Two problems.

1) Richer doesn't just mean "rich" - very importantly it often means just "out of abject poverty."

At the lowest levels of economic existence, there is no incentive at all for environmentally friendly actions and lost of incentive for unfriendly actions (cutting wood, producing lots of children, etc).

Hence raising the economic level of the world is important in this regard. No successful system for doing this does not also produce rich and very rich people.

2)It very much affects policy.

Policy decisions are too often made without the sort of cost balance that is described. For example, cost benefit analysis is forbidden in some or all of EPA's actions, and EPA is now empowered to regulate a huge number of CO2 emitters directly, and almost all of them indirectly. This vast power, unconstrained by cost-benefit analysis, is itself based on the speculative effect of a speculative prediction of the far future behavior of the very difficult (probably impossible today) to predict climate system.

Phoenix, AZ frequently fails "clean air" metrics, with consequent adverse regulatory action, simply because it is in a desert where dust, a particulate, is naturally lofted into the air.

Furthermore, policy decisions are made by governments which are dangerously prone to make poor decisions, and hence these interventions should be reserved for major issues.
4.25.2009 2:45pm
JE:
The phrase "exporting pollution" also comes to mind. Declining levels of pollution in the rich world may simply mean that the gap between the rich world and the poor world is larger than the poor world's perceived cost of taking on the rich world's pollution.
4.25.2009 3:24pm
kietharch (mail):
Have other commenters noticed, a I have, that a great deal of investment goes into justifying and rationalizing our (American) lifestyle? how the systems of the physics and mechanics can be altered so that we can continue to live an outrageously consumptive lifestyle? "..they'll figure out a way..." to make my 5000 lb car efficient and how airplanes work so that I can winter in another hemisphere without polluting or make my six thousand square foot house be like totally environmental. Our lives are lovely; no one wants to change. And any crackpot who claims we won't have to is embraced and welcomed as a visionary.

It reminds me of the Cargo Cult that have spent (so far as I know) sixty or so years planning for the return of wealthy American soldiers and their leavings.

Sorry for the crackpot term
4.25.2009 3:44pm
Splunge:
I see two major flaws that vitiate your points, Posner.

The first, covered by gattsuru above, reflects the fact that you do not adequately ponder the philosophical definition of "pollution." A reasonable first pass at that definition would be "undesirable side-effects of desirable effects." From that point of view, pollution is indeed functionally equivalent to a waste of resources.

That leads to the conclusion that the most powerful force constraining "pollution" is a competitive free market, because this is the most powerful mechanism we know for wringing waste out of activities that convert resources to desired products and services.

And, indeed, it is the case that measured on a per watt or per ton or similar basis of economic output, the most advanced economies with the freest economies produce the least pollution. (You get different results if you use the typically slanted and bogus measure of per capita pollution for the same trivial reason the waste and corruption in government is less the less government there is in the first place. Poor, naked, short-lived cavemen obviously generate very little pollution because they generate and use very little goods and services.)

The second, and larger logical flaw, is in imagining that if the "distributed wisdom" represented by a market economy isn't wise and benevolent enough to reduce "pollution" itself, it is nevertheless wise and benevolent enough to select and submit to a government that can.

In the first place, you've got a pretty stark logical bootstrap problem there. You might as well ask sheep to select their shepherd.

In the second, the empirical historical evidence is that centrally directing an economy for anything but the narrowest of purposes is futile and, worse, apt to lead to unintended consequences worse than the intended benefits. The environmental record of centrally-planned economies is almost uniformly worse than that of free market economies, cf. the Aral Sea disaster.
4.25.2009 3:57pm
Frater Plotter:
Have other commenters noticed, a I have, that a great deal of investment goes into justifying and rationalizing our (American) lifestyle?
Have you noticed how this happens in every society? How the French justify being like the French, and the Chinese rationalize their Chinese-ness; the Israelis their Israeli culture, and the Iranians their Persian one? To think that this is a unique property of Americans is to be a blind fool; every culture includes its self-preserving and self-justifying elements, its compensators for what it cannot provide, and its rationalizations for whatever injustices or harms are structurally inherent to its politics or culture.
4.25.2009 4:03pm
Frater Plotter:
The environmental record of centrally-planned economies is almost uniformly worse than that of free market economies, cf. the Aral Sea disaster.
You don't even need to go that far afield. There's a reason that statists make lists of the biggest "corporate polluters" in the United States ...

... because, consistently the worst polluter in the United States -- if you drop the "corporate" qualification -- is the United States government itself. Most especially the United States military, with its jet fuel and chemical-weapons dumps, its nuclear waste (and nuclear-weapons testing) and its unregulated use of industrial solvents. See here or here, among others ... heck, this Google search is practically a hotlist of disaster sites.

With the U.S. military responsible for about one-third of all toxic waste in the United States, it's clear why devoted statists restrict their concern about pollution to "corporate polluters": because any honest environmentalist would set their sights on the biggest and the worst targets in the country: Big Government and Big Government's War Machine.
4.25.2009 4:14pm
Rowzdower:

Carbon dioxide usually means you're wasting fuel, carbon, and oxygen. You may insist that natural prices do not properly measure the true costs of this pollution (I believe there are issues with other forms of calculation), but there are always economic reasons to aim for more efficient production.


Carbon Dioxide is the product of perfectly efficient burning of hydrocarbons. If your industrial process requires a certain amount of energy, and you get it from hydrocarbons, you must get CO2 from it.

Carbon Dioxide is a lot different from what we generally consider pollutants; it can't be simply filtered out or the fuel purified - its an unavoidable product of combustion.

Are you confusing CO2 with CO (monoxide?) because all the things you said were true about monoxide.
4.25.2009 5:31pm
John Moore (www):

Have other commenters noticed, a I have, that a great deal of investment goes into justifying and rationalizing our (American) lifestyle?

What's wrong with seeking happiness in life, and using technology to do it?
4.25.2009 5:41pm
Ben P:
Great, just when the debate starts to get sensible someone has to pop in with the "we should all live like third worlders" argument.
4.25.2009 5:53pm
kietharch (mail):
OK, I'll drink to that, John Moore:

happiness =consumption and technology
enables consumption. It is a simple formula and has (sort of) worked all through human history.

Frater Plater: I agree that everybody else does it. So then, it's like OK?
4.25.2009 6:03pm
jim47:
I think it perhaps worth noting that Tierney also supports a carbon tax such as the one to which Eric alludes at the end of his essay.
4.25.2009 6:57pm
geokstr (mail):

Frater Plotter:
...any honest environmentalist would set their sights on the biggest and the worst targets in the country: Big Government and Big Government's War Machine.

"This was the moment when the rise of the oceans began to slow and our planet began to heal." Yea, verily, the entire world will rejoice in His name when Obama's evisceration of the evil War Machine heals the planet. Of course, a predictable set of international players will rejoice more than others, but hey, we can all feel good about ourselves, for a little while anyway.

"Si vis pacem, para bellum"
4.25.2009 7:23pm
Mac (mail):
I would remind everyone that carbon and carbon dioxide are not pollutants. They are the stuff of life on this planet. If carbon is a pollutant, then so is oxygen and water. Try living without any of the three. You won't.

Also, we may consume 25% of the world's energy, but we feed 50% of the world. This was not a bad return at all on the energy we consume. Or, it wasn't until we started burning our food and causing rapid rises in food prices and famine in the third world. Especially, as the third world was hit with, guess what, cooling temperatures which greatly harmed their food production.

But, many posters above are quite correct in that we suffer from the NIMBY problem. We could safely and sanely get our own oil, lumber etc., with far fewer negative effects on the envioronment, but we want a pretty country. So, we do indeed export our pollution to China, India, Africa among others. These countries are the least capable of coping with the pollution, yet we feel so good about ourselves.
We are so moral, aren't we?

But then, any country or bunch of countries (I am including Europe), in this case, who can kill over 50 million Africans by prohibiting indoor spraying of DDT and stand by while an African baby dies at a rate of every 30 seconds by breathing in the fumes of the dung fires while on its mothers back, is not all that moral. We can't let Africans have coal plants and electricity as it might cause something to happen 100 years from now. Or, not. But, we can't let them take that chance. I mean, in a hundred years there might be famine caused by global warming. Oh, wait. Famines are being caused by our burning our food right now. No matter. We feel good about ourselves and that is all that matters. Besides, we can buy indulgences, oops, I mean carbon credits from Al Gore and burn all the fuel we want. Yeah, right.
4.25.2009 8:32pm
gattsuru (mail) (www):
Rowzdower
Carbon monoxide's got a few places where production of it is a necessary byproduct or even an ideal result (it has non-zero fuel value, and can be used to produce some fun chemicals), but generally if you're burning fuel, especially anywhere near humans working, carbon monoxide is a much worse thing.

But while carbon monoxide means you can improve the vendorable output of burning a given fuel by increasing the amount of oxygen available at the time the fuel is being burned, carbon dioxide is in no way some ideal result. While it's an unavoidable best-case consequence of burning fuel, burning fuel itself is something that nearly all companies want to reduce. Sometimes they already go to rather hefty means.

There is quite the incentive toward the development of technology that produces lower-impact environmental works. That simple fact is so plain that most people here will find my post on it a "d'uh" moment, but it alone and easily reveals the false dichotomy in Mr. Posner's "only two" explanations for the EKC. Without defining pollution or negative impact to obscene extremes, there is no form of pollution that can externalize all of its negative consequences and this will inherently drive the long-term development of technology toward efficiency.
4.25.2009 9:21pm
Ben P:

I would remind everyone that carbon and carbon dioxide are not pollutants. They are the stuff of life on this planet. If carbon is a pollutant, then so is oxygen and water. Try living without any of the three. You won't.


See this is exactly why I made snide remarks about living like third worlders, it comes back around to encourage stuff like this.

Yeah, Co2 is the "stuff of life." but it's natural concentration in the atmosphere is about .03% to 0.5%, At 2% Carbon Dioxide most people start to show noticible breathing difficulty. Concentrations above 5% are toxic within relatively short order. A lack of oxygen compounds this.

Now this has basically nothing to do with pollution, but it's to make the point that tons and tons of substances are essential for life, and and fatal to life in higher quantities.


Coming back around to pollution, the science behind the ultimate greenhouse effect is beyond reproach. An atmosphere with more Co2 will be a warmer one. What's often theorized about, but not entirely certain is the exact rate and mechanics by which the change occurs, and perhaps most importantly what the costs of that change are and the feasibility of addressing it. There's plenty of legitimate arguments about why spending 2x money to prevent x damage might not be a great idea, especially if we're not even sure of spending the money works or that x damage might actually be .8x damage or .5x damage.
4.25.2009 9:31pm
RowerinVa (mail):
There are two major ways that richer societies are greener on average, but it's only an average.

First, they are more efficient. Most societies get richer not (primarily) by using more, but by using more efficiently. Thus we now get much more food per acre and man-hour of agricultural input, more energy from fuel and man-hour of generating input, and so forth. Second, they reduce fertility. All things being equal, having smaller families is greener.

But these are historical observations about western societies. The jury is still out as to whether these generalizations will hold about the Middle East, Asia, Africa, and parts of Latin America other than the richest and most Westernized parts of Brazil. It's important not to assume that history and economics as applied to one culture is necessarily a predictor of the history and economics of another.
4.25.2009 9:45pm
Eli Rabett (www):
What we know is that as nations get richer, they first get a lot dirtier and more dangerous. At some point they are rich enough to start cleaning up the mess. One of the ways they do that is to send the mess to countries that are just starting to get richer.
4.25.2009 11:55pm
Ben P:

What we know is that as nations get richer, they first get a lot dirtier and more dangerous. At some point they are rich enough to start cleaning up the mess. One of the ways they do that is to send the mess to countries that are just starting to get richer.


Possibly, but maybe not.

China certainly shows some evidence of what you describe, but it also shows some evidence of striding through the "ditier" phase much more quickly than we did. (because of course we had to develop the technology to get out of it). There's fewer bars to them adopting efficiency technology as fast as they can.

The best example of this isn't really pollution since china is pretty dirty, but in finance.

20 years ago, Chinas economy was as close to being a completely cash economy as one can get. (heck, the cultural revolution took them almost to being pre-cash).

Today there's more than 100 million credit cards in circulation in China up from 3 million credit cards less than 6 years ago.

The instrument that dominated western finance for almost a century, the check, is a rare thing in china. Their economy is skipping directly from cash to electronic transactions.


If it can be done with finance there's not much reason it *couldn't* be done with other technology, although that doesn't necessarily mean it will happen that way.
4.26.2009 12:31am

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