Tradeoffs and sustainable development

Case 2. Tradeoff: place more weight on economic growth and only address low-cost environmental concerns

When environmental degradation is reversible and has limited impact on economic growth in the short to medium term, placing greater weight on economic growth entails lower opportunity costs and should be pursued. But as discussed below, this does not justify ignoring environmental concerns altogether.

To justify a strategy of "grow first, clean up later," policymakers rely on the argument that is only partially borne out by observation-that environmental degradation gets worse initially and then gets better as a country develops-the environmental Kuznets curve. Often they also act as if the relationship is automatic-so that there is little need to actively address the problem. This could be the case if, say, shifts in the scale and sectoral composition of output and changes in technology within sectors result in a move away from pollution-intensive production to less pollution-intensive methods.

But it cannot be assumed that environmental quality will necessarily improve with economic growth. First, such a relationship is observed only for some environmental factors. For local air quality, there is a strong inverted-U shape relationship with income for sulfur dioxide and carbon monoxide, and even a one-for-one downward relationship between particulates and per capita income.⁵¹ But for water quality the evidence is mixed. And for per capita emissions of CO2 there is a steady worsening as per capita incomes grow.⁵² Indeed, recent research concludes that, on the whole, there is little evidence of environmental quality getting worse with initial growth and then getting better at higher per capita incomes.⁵³

Second, even for environmental assets that show a positive association with per capita income growth, the association is not structural. Instead, the better environmental outcomes reflect the impact of regulations and other polices put in place in response to public action and pressures from society as preferences for environmental quality become stronger with higher per capita incomes-not to any natural changes in the composition of production or consumption.⁵⁴

It is important to recognize that, although the resource degradation or depletion may be reversible, its impact on human well-being is not (recall the degradation of Aral Sea described in box 2.3). Future remedial action cannot compensate the generation or generations that live during the transition to a better environment. Consider the costs of air and water pollution for human health. Recent estimates suggest that about 11 percent of illnesses and premature deaths in developing countries are due to environmental health risks from water supply and sanitation and from urban and indoor air pollution.⁵⁵ This is about the same as from malnutrition, which accounts for 15 percent of all illnesses and deaths. The poor are particularly vulnerable since they have fewer alternatives to polluted drinking water and are more likely to live near heavily traveled roads where air pollution is highest.

For this reason, there is little justification for not addressing at least some of these environmental concerns along with economic growth. And often a large proportion of the problem can be addressed at relatively low cost (see figure 2.4).⁵⁶ Indeed, several cost-benefit studies have shown that the costs of addressing a sizable proportion of pollution can be relatively low-and that the benefits of doing so can often be very high. In such cases there would be grounds for stricter pollution control when pursuing a high growth strategy even in very low-income countries.⁵⁷

Although policymakers often worry that pollution control measures hurt the competitiveness of firms, research does not support their concern.⁵⁸ What is observed is that countries can have quite different environmental outcomes while achieving the same economic growth rates. There is, for instance, a fairly wide range of environmental outcomes in countries averaging a 3 to 5 percent annual growth (figure 2.3).

Indeed, environmental outcomes at given incomes are strongly influenced by how parties (citizens, business leaders, policymakers, regulators, NGOs, and other market actors) react to economic growth and its side effects.⁵⁹ This suggests that there can be a demand in society for better environmental quality even at fairly low incomes. In a policy formulation setting that allows for participation, voice, and channels for feedback, countries are likely to experience better environmental outcomes at all levels of income (see chapter 3).