CHART: The link between economic growth and pollution is breaking down

Economic growth has historically been linked to increased pollution.

Research from the IMF shows that advanced economies are starting to show signs of breaking this relationship, by increasing growth while reducing pollution. However, for emerging market economies, they find this decoupling has yet to be seen.

The chart below shows the percent increase in trend emissions for every 1 percent increase in trend incomes. This is described by economists as the elasticity – the amount pollution changes for changes in incomes.

Developed European economies such as France, Germany and the UK have now reached a stage where increases in national income are actually accompanied by a fall in the level of pollution. The IMF researchers suggest that this is due both to active policies by these countries aimed at decarbonizing their economies as well as the structural transformation of their economies towards a greater role for services.

Source: Cohen, Jalles, Loungani, and Marto, IMF Working Paper 18/56

Emerging economies such as India, China and Turkey on the other hand are still producing increases in emissions as their incomes rise. Even here however the IMF notes there has been progress. The elasticity estimates for countries such as India and China, while high, are lower than they were in the 1970s and 1980s. The research has also found that for countries such as China, the richer provinces are starting to show some signs of decoupling.

Australia is somewhere in between. While not yet reaching the stage where emission levels are falling, the research does show Australia seeing only very small increases in emissions for increases in national income.

To ensure further progress, the IMF notes that it has long advocated countries “should consider carbon pricing—impose charges on the carbon content of fossil fuels or their emissions—to accelerate progress toward a green world”.

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