Does economic prosperity decrease environmental impact?

The article was originally published (in Icelandic) by the Icelandic newspaper Kjarninn.

We are living in interesting times, where the environmental awareness of the public and companies is increasing rapidly. In historical context, this is commonly referred to as the three waves of environmental awareness, the first in the 1960s when the environmental impact from production began to emerge as a problem and pressure began to arise from the public.

The United States Environment Agency (EPA) was later established in 1970. In the 1980s, guidelines and regulations were developed, especially within the United States. P2 (Pollution Prevention) was established within the EPA, which provided companies with instructions on how to prevent pollution instead of minimizing pollution. After 2000, the environmental awareness of the public has been dominant, and companies have (in some ways) considered this awakening [1].

The environmental Kuznets curve

One theory that has been put forward connects the prosperity and environmental impact of nations. In short, it is said that in the beginning, when prosperity is low, there is little industry available. When industry increases and prosperity within the country concerns increase, pollution also increases per dollar produced. When a certain level is achieved, prosperity continues to grow, but the environmental impact of each produced unit decreases.

This development can be explained in two ways. Firstly, wealthy nations have the possibility to invest in environmentally-friendly technological innovations and are (usually) more willing to do so. Secondly, wealthy countries are prone to outsource production, for example to poorer countries, which means their economy tends to be more service-oriented.

With this knowledge as a guiding principle, our only goal should be to increase productivity, as environmentally friendly times will be waiting for us if we earn enough. This trend is called the environmental Kuznets curve [2].

Further observation shows that he environmental Kuznets curve might not hold true [3]. No matter how you look at the causal relationship, it seems that more developed countries simply pollute more for each produced unit, and do not resort to environmentally-friendly technologies.

Figure 2 below shows a graph put together by the authors of this article. The figure uses data from the World Bank on greenhouse gas emissions (Y-axis), GDP per capita (x axis) and proportion of GDP coming from production (size of circles) [4].

Dear reader, in Figure 2, you can press the play button and see the development of 198 states with respect to these factors from 1990 to 2014. If the environmental Kuznets curve holds true, the nations should travel across a hill in the middle of the x-axis.

Picture 1 – Graphical presentation of the Kuznets environmental curve

If you have now examined the trend in Figure 2, it is evident that such a pattern as is expected in the environmental Kuznets curve is not visible when looking at carbon dioxide emissions. On the contrary, it seems that pollution for each produced unit increases with increased prosperity!

There is nowhere to be found a point (or it is very weak) when nations take strong action to reduce emissions. However, some states seem to be excluded, for example Lichtenstein, Switzerland and Luxembourg, which largely thrive on financial markets. But in general, the idea that increased prosperity ultimately leads to environmentally-friendly lifestyles does not hold.

What about Iceland?

In a recent report, the Institute of Economics at University of Iceland looks at the same period as viewed above, 1990 to 2014 [5]. There it says: "The release of greenhouse gases increased by 26% from 1990 to 2014 ...", it is also noted that "The release increased most from industry and chemical use, or by 79%. Release also increased from power generation (69%), waste (52%) and transport (39%)."

Generally speaking, Icelanders have shown that the environmental Kuznets curve does not stand at all. During Iceland’s most prosper years, we have increased emission of greenhouse gases, not unlike most other nations, except just more if anything. Had Iceland's development been in line with the concept of the environmental Kuznets curve, it would have reduced emissions during the period. In almost all sectors, the release of GHG’s has increased.

But can it be that despite great prosperity, the developed nations simply have not reached the height of the environmental Kuznets curve, and are yet to pollute more (and gain more prosperity) until investing in pollution-reducing solutions? Let’s look back to Iceland.

The report mentioned above indicates that emissions from the fisheries sector have decreased by 43%. In fact, it is obvious that minimization of emission from ships is by nature economical, as the emissions are directly linked to very costly oil consumption. If we look a little closer into other industries, there may also be elements that indicate that Iceland might be heading down the other end of the environmental Kuznets curve.

For example, the CarbFix project of Orkuveita Reykjavíkur has shown really good results regarding carbon dioxide storing from geothermal power plants [6]. The Reykjanes Natural Resources Park is also a good example of how energy efficiency can be increased with well thought locating of companies using excess heat from geothermal power plants.

Industries and companies such as the Blue Lagoon, biotech companies and aquaculture companies (in fact, hundreds of jobs have been created in connection to the resource park).

Finally, it may be noted that governments do not seem to be interested in moving us down the right end of the environmental Kuznets curve through direct action. It seems that it is primarily a private initiative that pushes for environmentally friendly innovation and creates jobs related to it. To some extent it might be due to public and governmental pressure.

As noted in previous articles from the authors, it is the responsibility of the companies themselves to maximize the value of environmentally friendly actions, whether they are in production or service.


[1] Scarce, R. (2016). Eco-warriors: Understanding the radical environmental movement. Routledge.

[2] Stern, D. I., Common, M. S., & Barbier, E. B. (1996). Economic growth and environmental degradation: the environmental Kuznets curve and sustainable development. World development, 24(7), 1151-1160.

[3] HStern, D. I. (2004). The rise and fall of the environmental Kuznets curve. World development, 32(8), 1419-1439.

[4] World Bank (2017). Vefsíða. [](

[5] Hagfræðistofnun Háskóla Íslands. Skýrsla nr. C17:01. Ísland og loftslagsmál.

[6] Matter, J. M., Stute, M., Snæbjörnsdottir, S. Ó., Oelkers, E. H., Gislason, S. R., Aradottir, E. S., ... & Axelsson, G. (2016). Rapid carbon mineralization for permanent disposal of anthropogenic carbon dioxide emissions. Science, 352(6291), 1312-1314.