Environmental kuznets curve

The Environmental Kuznets Curve (EKC) hypothesizes that the relationship between per capita income and the use of natural resources and/or the emission of wastes has an inverted U-shape. According to this specification, at relatively low levels of income the use of natural resources and/or the emission of wastes increase with income. Beyond some turning point, the use of the natural resources and/or the emission of wastes decline with income. Reasons for this inverted U-shaped relationship are hypothesized to include income-driven changes in: (1) the composition of production and/or consumption; (2) the preference for environmental quality; (3) institutions that are needed to internalize externalities; and/or (4) increasing returns to scale associated with pollution abatement. The term EKC is based on its similarity to the time-series pattern of income inequality described by Simon Kuznets in 1955. A 1992 World Bank Development Report made the notion of an EKC popular by suggesting that environmental degradation can be slowed by policies that protect the environment and promote economic development. Subsequent statistical analysis, however, showed that while the relationship may hold in a few cases, it could not be generalized across a wide range of resources and pollutants.

Further Reading
Stern, David I. 2004. The rise and fall of the environmental Kuznets curve, World Development 32(8): 1419-1439.