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Economic Growth or Environmental Sustainability: Do We Have to Choose?

As the effects of climate change are becoming a reality for many around the developing world, finding solutions to support sustainable development is an absolute necessity. Those on the bottom of the socioeconomic ladder face the worst effects of climate change, and poor nations have little ability to combat rapidly changing environmental conditions. It is vital to implement innovative environmental policies to reverse this trend.

The challenge in achieving this for developing nations is highlighted by the environmental Kuznets curve (EKC), an economic model that illustrates the relationship between per capita income and environmental degradation. As income rises, degradation rises until income reaches a certain undefined level, the so-called “turning point”, then begins to fall. This inverse U relationship has explained the observation of many developed countries in the past, which now find themselves in the second half of the curve, after the turning point.

Developing nations are focused on economic growth and factors intended to increase income, whether or not it comes at the expense of environmental degradation. As such, lowering environmental degradation has been viewed thus far as a luxury that can only be pursued once a certain level of economic growth has been reached. The empirical evidence in support of the EKC indicates that a country in the beginning stages of development must either choose to focus on economic growth or on environmental preservation. Based on this model, there appears to be no way to achieve both before the turning point.

Since the poor are disproportionately affected by adverse environmental conditions and the outcomes of climate change, it is important that environmental concern influences the conversation on economic growth for the world’s poorest countries. We can no longer ignore environmental degradation in hopes of chasing the promises of growth. Neither can we neglect growth and leave the poor in their misery while trying to save the planet. We must reconcile the two.

Fortunately, the current access to modern green technology and the mindset of global policymakers towards sustainability might be able to change the future of sustainable development for the better; as well as, the possibility to mitigate the EKC and resolve the growth-sustainability dilemma. One piece of the solution to this growth-sustainability dilemma can be found in the abundant renewable energy sector, moving away from high polluting fossil fuels. Renewable energy is a key mode of technological advancement and innovation that is being used to achieve sustainability goals. Investment and consumption of renewables will lower emissions and increase economic growth for the 102 countries examined in this paper.

This paper investigates the relationship between investment in renewable energy and carbon emissions, and the relationship between renewable energy and growth of income per capita. The analysis determines whether or not investments that target renewable energy and sustainable development will result in lowered emissions, as well as economic growth. If it can do both, then the growth-sustainability dilemma is no longer a concern.

Another factor that contributes to the growth-sustainability dilemma is foreign direct investment (FDI) in sectors that promote renewable energy.  FDI, in the context of the pollution halo hypothesis, claims that FDI can actually lower pollution in developing countries rather than increase it. The results of this paper show that there is a negative correlation between investment in renewable energy and carbon emissions per capita, and a positive correlation between investment in renewable energy and GDP per capita. Additionally, there is a negative correlation between FDI and carbon emissions per capita and a positive correlation between FDI and GDP per capita.

Policymakers can use this research to support investment in the renewable energy sector in the hope of increasing growth without degrading the environment. While renewables are projected to become cheaper than fossil fuels by the year 2020, they are not quite at that point, so it is important to continue implementing support for renewable energy to spur research and development in that field.

Countries that are still developing today face challenges related to the environment and climate change that more developed countries did not face when going through the same economic growth phases. With rising tensions to become globally relevant by increasing output and becoming a major player in the realm of international trade, coupled with the looming natural disasters climate change is promising to bring, the decision between growing quickly and preserving the environment carries an immense weight.

In the past, growth has come at the expense of high levels of pollution that negatively impact the lives of citizens, especially the poor of these countries. However, sustainable development can supply a path forward for developing countries that avoids the harmful outcomes of excess carbon emissions. Policies that focus on sustainability, and specifically renewable energy, seek to limit carbon emissions without deterring growth, undermining the assumptions made by the EKC and bringing growth and sustainability to all.