The Relationship Between Economic Growth and Air Pollution in Finland

What is it about?

The article tests a hypothesis claiming that the gaseous emissions of energy production follow an inverted U-curve related to income. The hypothesis is known as the ‘environmental Kuznets curve’ (EKC). The tested data contain Finnish emissions in the period 1800–2003 using newly constructed emission series. Although the carbon dioxide emissions from Finnish energy production increased at the beginning of the period under study according to the EKC hypothesis, a steady decline of these emissions at high income levels could not be found. We find a genuine support for the EKC hypothesis only for sulphur dioxide emissions and, with some reservations, also for nitrogen oxides. Finally we bring up some problems related to the interpretation of the EKC. First, an inverted U-shape may be found in some cases, but the vital question is: which part of the curve are we in at this particular moment? If there is a long way up to the turning point, economic growth will cause environmental damage for a considerable period of time. Second, it is questionable whether economic growth has an automatic tendency to diminish environmental damage at high-income levels. A limitation of the reduced-form approach used is that it is unclear why the estimated relationship between pollution and income exists. Finally we question whether the severity of environmental degradation might itself create a turning point for the emissions.

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