Poverty and pollution abatement: Evidence from lead phase-out

Ecological Economics 56 (2006) 125 – 131 www.elsevier.com/locate/ecolecon

ANALYSIS

Poverty and pollution abatement: Evidence from lead phase-out F.G. HiltonT Department of Economics, Loyola College in Maryland, 4501 North Charles Street, Baltimore, MD 21210, United States Received 22 August 2003; accepted 4 January 2005 Available online 9 April 2005

Abstract An extensive literature suggests that poverty prevents nations from abating many forms of pollution. Considerable research also proposes a competing claim, that poverty delays but does not prevent pollution abatement. Neither position enjoys persuasive empirical support. Data describing the phase-out of leaded gasoline allow for empirical investigation and they support the latter claim—that poverty delays but does not prevent pollution abatement. Many poor nations have solved the problem of vehicular lead pollution and they have tended to follow rich nations in doing so. The phase-out achievements of richer nations have generated much of the ability and will that has enabled poor countries to solve the problem. The pattern of abatement sequencing and its root causes present important implications for environmental policy and research. D 2005 Elsevier B.V. All rights reserved. Keywords: Poverty; Pollution; Gasoline; Lead; Abatement

1. Introduction The interplay of nations’ income with their environmental quality continues to generate considerable debate. The specific relation between poverty and pollution abatement remains particularly unsettled. An extensive literature supports the view that poverty prevents pollution abatement. It suggests that until poor nations overcome poverty, they are unlikely to reduce most forms of pollution. A sizeable body of research also supports the competing claim that poverty delays pollution abatement but does not

T Tel.: +1 410 617 2544; fax: +1 410 617 2118. E-mail address: [email protected]. 0921-8009/$ - see front matter D 2005 Elsevier B.V. All rights reserved. doi:10.1016/j.ecolecon.2005.01.020

prevent it. According to this view, poor nations tend to repair their air, land, and water after richer nations have done so but before they themselves have significantly raised their incomes. For the billions of residents of poor nations, the debate carries major implications. The first predicts that environmental recovery is even further off than economic prosperity. The second suggests that pollution reduction could occur relatively soon. Neither claim yet enjoys persuasive empirical support.1 Data describing the global phase-out of leaded gasoline support the second theory. They demon1 A third possible hypothesis, that poverty exerts no influence on the pollution abatement process, enjoys neither empirical nor theoretical support and is not considered in this paper.

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F.G. Hilton / Ecological Economics 56 (2006) 125–131

strate that many poor nations have made significant phase-out progress and that, in doing so, they have tended to lag behind richer nations. In developing this point, the paper provides: a review of the competing claims concerning poverty and pollution abatement; a description and presentation of the phase-out and income data; an explanation of the observed patterns; and, a consideration of their major implications.

2. Competing claims concerning poverty and pollution abatement Dasgupta et al. (2002) observe that many policymakers regard poverty as a major obstacle to pollution reduction. The United Nations (2002) also suggests that poverty prevents abatement. Taylor (2002, p. 2) claims that low income constrains pollution abatement, maintaining that bvirtually every serious analyst is now well aware of the link between economic growth and environmental qualityQ and that bonce per capita income reaches a certain point (somewhere between US$2500 and US$9000, dependent on the pollutant) ambient concentrations of air and water pollution begin to decline.Q Beckerman (1992, p 491), based on his observations that bEurope, North America and AsiaQ have lower lead levels than bAfrica, Latin America and the Caribbean,Q infers that bthe surest route to a cut in the lead content of gasoline is a fast growing or rich economyQ and that bin the longer run, the surest way to improve your environment is to become rich.Q The World Bank offers a similar view, explaining that bdemand for a better environment rises as per capita income growsQ (because) bhigher income frees people from worries about their daily survival and enables them to devote resources to environmental qualityQ (World Bank, 1992, pp. 39, 10). Similarly, Radetzki (1992, p. 132) asserts that with higher income, people can meet survival needs and babstain from consumption known to harm the environment, spend (more) on repairing the environment, and adopt preventive measures.Q The literature describing the Environmental Kuznets Curve (EKC) also suggests that achievement of a certain income level is a necessary condition for most

forms of pollution abatement.2 Grossman and Krueger (1991) conclude that ambient concentrations of sulfur dioxide (SO2), suspended particulate matter (SPM), and smoke tend to decline after nations have passed a per-capita income threshold of US$5000. Selden and Song (1994) find that SO2 starts to decline at US$8709, nitrogen oxide at US$ 11217, SPM at US$10,289, and carbon monoxide at US$5963. Hilton and Levinson (1998) calculate that the EKC for automotive lead peaks at a national income between US$4000 and US$11,000, depending on the functional form of their analysis. The competing view B that poverty delays pollution abatement but does not prevent it B receives significant support from Grossman and Krueger (1995). They speculate that low-income countries could start to reduce pollution long before they reach the income levels at which high-income nations have done so. Unruh and Moomaw (1998) contend that pollution-abatement can occur before a nation overcomes its poverty. They believe that, unlike highincome, early-abating nations, poor countries could reduce critical forms of pollution while their incomes are still low. Like Grossman and Krueger, Unruh and Moomaw provide a theoretical rather than an empirical foundation for their claim. Hilton and Levinson (1998) offer empirical support for the view that poor countries reduce pollution but they do not directly address questions concerning the temporal order in which rich and poor nations abate. Thus, the literature does not yet provide an empirical and intentional answer to this paper’s central question, ADoes poverty prevent pollution abatement or simply delay it? Data describing the global phase-out of leaded gasoline allow for empirical and direct investigation.

3. Data Table 1 describes the annual average lead content of national gasoline supplies, measured in grams of 2

The Environmental Kuznets Curve (EKC) illustrates the claim that certain forms of pollution increase in the early stages of income growth, reach a peak at some middle level of income, and then decline as national income grows toward relatively high levels. Levinson (2002) provides and extensive literature review.

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Table 1 Average lead content of national gasoline supplies (gpg), initial abatement years (T), and initial abatement incomes, 1972–1994 Nation

Year 1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

InAbInc

Argentina Australia Belgium Brazil Canada Colombia France Germany Greece Guatemala India Italy Ivory Coast Japan Kenya Malaysia Mexico Myanmar Netherlands Philippines Poland Portugal Sd. Arabia So. Korea Spain Sri Lanka Syria Thailand Turkey UK US Venezuela

3.08 3.18 2.54 3.17 2.95 2.76 2.36 1.51T 3.02 1.85 2.13 2.38 2.75 0.77T 2.78 2.95 2.59 2.11 2.27 1.84 1.90 2.72T 3.17 2.92 2.44 2.27 3.17 2.91 3.18 2.77 1.99 3.23

1.46 2.94 2.96T 3.18 3.29T 1.61 2.42T 0.57 2.66 2.62 2.13 2.40 3.18 0.21 2.84 3.03 3.18 2.12 2.98T 0.86 2.10T 2.40 3.17 2.38 2.33 2.38 3.18 3.18 1.32 2.08 2.77 3.18

1.45 3.12 2.08 3.18 2.40 1.56 2.08 0.57 3.18T 2.63 2.05 2.40 3.30 0.21 2.98 3.18 3.39 2.12 1.51 1.40 2.08 2.40 3.18 2.38 2.33T 2.38 3.18 2.31 1.25 1.70 2.87T 3.18

1.62 3.16 1.70 3.18 1.74 1.59 1.89 0.57 1.89 2.77 2.01 2.40T 2.14 0.29 3.18 3.18 3.24 2.12 1.51 1.50 1.82 2.40 3.18 3.18 2.17 2.38 3.18 3.18 1.17 1.70 2.23 3.18

3.18 3.18 1.51 3.18T 1.82 1.58 1.51 0.57 1.51 2.76 2.01 1.51 2.69 0.09 3.18 3.18 3.23 2.12 1.51 3.98 1.76 1.99 3.18 3.18T 2.17 2.65 3.18T 3.18 3.18 1.51 1.29 3.18

3.18T 3.18 1.51 3.00 1.73 1.59 1.51 0.57 1.51 3.10T 2.01 1.44 2.84 0.03 3.18 3.18T 3.47T 2.12 1.51 3.98 1.66 2.05 3.18 1.21 2.18 2.65 2.15 3.18T 3.18 1.51 1.08 3.18

2.53 3.18T 1.51 2.14 1.61 1.62 1.54 0.57 1.51 1.42 2.13 1.51 3.03T 0.02 3.18 1.51 1.13 2.12 1.54 3.97 1.60 1.51 3.18T 1.21 1.51 3.18 1.51 1.70 3.18T 1.51 0.37 3.18

2.35 3.03 0.57 1.77 0.51 3.03 1.51 0.56 1.12 1.37 2.13 1.51 1.82 0.00 3.18 1.51 1.96 2.12 0.55 3.97T 1.52 1.51 2.27 1.21 1.51 3.18 1.51 1.70 2.02 0.57 0.07 3.18

1.34 2.64 0.57 0.00 0.34 3.03T 0.95 0.41 0.69 1.78 2.11 1.50 1.34 0.00 3.18T 1.49 1.01 2.12T 0.43 2.90 1.50 1.51 2.27 0.94 1.51 3.17T 0.93 1.70 0.91 0.56 0.06 3.22T

1.71 2.23 0.43 0.00 0.07 1.63 0.49 0.21 0.63 1.77 2.12T 0.54 1.14 0.00 1.19 0.57 0.79 0.02 0.32 2.83 1.38 1.48 1.51 0.40 0.31 1.51 1.68 1.51 0.39 0.39 0.05 1.70

0.60 0.93 0.33 0.00 0.04 0.00 0.38 0.13 0.51 0.05 1.59 0.50 0.76 0.00 1.22 0.42 0.63 0.03 0.20 0.57 0.58 1.26 1.51 0.00 0.53 1.51 1.60 0.25 0.85 0.33 0.05 1.40

0.35 0.38 0.23 0.00 0.04 0.05 0.31 0.09 0.43 0.00 1.59 0.38 0.76 0.00 1.23 0.35 0.58 0.03 0.15 0.53 0.46 0.42 1.51 0.05 0.51 1.51 1.52 0.19 0.88 0.27 0.04 1.40

5487 13274 9871 4303 12225 3231 10510 9906 5418 2349 1264 9284 1539 8019 902 4171 5942 461 10375 1535 4187 3994 9199 3093 6490 2028 4467 2195 3022 8970 14271 6776

lead per gallon of gasoline (gpg). The data, provided on a biannual basis for the period 1972 through 1994, cover the 32 nations that had 1990 populations of 10 million or more, that are consistently covered in Octel’s (1972–1994) Worldwide Gasoline Survey, and that have made Asignificant abatement progress. For the purposes of this analysis, a nation’s phaseout progress is regarded as significant if it reduced its lead levels to 1.6 gpg or less in both 1992 and 1994. This lead content represents a 50% decline from the typical pre-phase-out level of 3.2 gpg. Moreover, nations that reach 1.6 gpg typically progress to a complete phase-out level of 0.0 gpg. Asterisks in Table 1 indicate each country’s Ainitial abatement year, the year in which signifi-

cant abatement progress began. The last column of Table 1 indicates Ainitial abatement income, the income level that prevailed during the initial abatement year. The estimates of per-capita income are taken from the Penn World Tables (Mark 5.6) (Summers et al., 2002) and measure purchasing power parity (PPP).

4. Results Fig. 1 plots the data from Table 1, showing the relation between initial abatement incomes and initial abatement years. It yields two basic claims.

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Fig. 1. Initial abatement incomes and initial abatement years.

First, Fig. 1 shows that a number of poor nations have reduced vehicular lead pollution. The four poorest nations, represented by the points farthest to the left (India, Ivory Coast, Kenya, and Myanmar), had initial abatement incomes of less than US$760. The World Bank (2000) classifies them as Alow-income nations. Moving to the right, the next seven nations (Colombia, Guatemala, Philippines, Sri Lanka, Syria, Thailand, and Turkey), had Alower-middle incomes of between US$761 and US$3030.3 These 11 poor nations account for one-third of all the countries that have made significant progress. They undertook significant abatement progress at income levels well below what the EKC literature predicts. Poverty did not prevent them from abating lead pollution. Evidence from beyond the data set also indicates that poor nations have reduced the use of leaded gasoline. Four more low-income nations (Bangladesh, Haiti, Nicaragua, and Vietnam) and 10 more lower– middle-income nations (Albania, Belize, Bolivia, Costa Rica, Dominican Republic, Ecuador, Egypt, El Salvador, Honduras, and Jamaica), have completely eliminated leaded gasoline (Global Lead Network, 2003). China’s largest cities have also reduced gasoline lead to very low levels. The abatement progress of these nations counters the claim that poverty prevents pollution abatement. Second, poverty implies later abatement. The trend line’s negative slope indicates that initial 3

Although any nation’s income category could have changed between its initial abatement year and the time at which the World Bank (2000) made its classifications, such changes do not actually occur for the countries considered here. Moreover, while the World Bank data do not necessarily align with the Summers and Heston data used in this analysis, those discrepancies do not alter this analysis.

abatement year and initial abatement income are inversely related. Rich countries have tended to move in the vanguard of lead phase-out while poor nations have tended to follow their lead. Notwithstanding the variance, a lower income suggests a later start on the phase-out of leaded gasoline.4 The trend line is based on the ordinary least squares regression in Eq. (1), has a B1 of
0.0008836 that is

4 Fig. 1 also shows important variations from the trend. The standard error of the residuals is roughly 4.5 years and, in seven cases, the difference between the actual initial abatement years (AY, given by the points), and the expected initial abatement years (EY, given by the trend line) is six or more years. Four of the seven major outliers B Portugal, Spain, and Japan (AY= 1972), and Poland (AY= 1974) B undertook phase-out at least 6 years prematurely (EY
AY N 6). The three other major outliers B Saudi Arabia and Australia (AY= 1984), and Venezuela (AY= 1988) B were at least 6 years tardy in adopting the clean technologies (AY
EY N 6). Differences in A adoption period growth rates B the average annual rate of growth for the 6-year period (AYA
4 to AYA + 2) B explain much of that variance. This period, from 4 years before the adoption to 2 years after it, is the critically important one during which most of the adoption planning and implementation occurs. The four most premature nations had the highest adoption period growth rates. Conversely, the three tardiest nations had relatively low or negative growth rates. At least for the greatest outliers, high growth seems to suggest premature adoption while low or negative growth suggests tardy adoption. Economic growth rates also explain the variance of the less extreme outliers. When A Adoption Period Growth Rates are added to Eq. (1), the resulting model, Eq. (2), yields an A Adoption Income coefficient of
0.0008055, and an A Adoption Period Growth Rate coefficient of -0.7090, both of which are statistically significant at the 99% level ( p = 0.00). Eq. (2) produces an R 2 of 61.9 (vs. 33.9 for Eq. (1)).

Initial Abatement Year ¼ a þ B1 ðInitial Abatement IncomeÞ þ B2 ðAdoption Period Growth RateÞ: ð2Þ The growth rate coefficient’s sign and significance suggest that high growth rates correlate with premature adoption while low or negative growth rates correlate with tardy adoption of clean technologies. This is true for all nations, not just the extreme outliers. A survey of these growth rates also shows that 1980 was something of a dividing line. Prior to 1980, no nation undertook lead phase-out unless it had a positive growth rate. After 1980, half of the adoptions occurred in contracting economies. In theory, a good deal of the variance might be explained by other variables, including the size and ownership of domestic refineries, trade-dependence, external affiliations, idiosyncratic factors, and civil and political liberties (Hilton, 1999). Preliminary analyses indicate that these factors either cannot be measured or that they do not explain deviations from the trend.

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statistically significant at the 99% level ( p = 0.00), and an R 2 of 33.9. Initial Abatement Year ¼ a þ B1 ðInitial Abatement IncomeÞ

ð1Þ

Fig. 1 also shows that 1979 was something of a dividing line in the global phase-out process. Of the 13 nations that started phase-out between 1972 and 1978, only two (15%) had initial abatement incomes below US$5000. Of the 19 nations that started to reduce gasoline’s lead content between 1980 and 1990, 14 (74%) had incomes of less than US$5000. Initial abatement incomes moved to a lower center of gravity during this period.

5. Explanation Throughout the 1970s, lead phase-out was primarily a rich country’s pursuit. Over time it became a project for poor countries as well. While still poor, those nations became able and willing to solve the problem. The phase-out achievements of early-abating, highincome nations explain much of that development. 5.1. The will to eliminate leaded gasoline The will to eliminate automotive lead pollution began as a first-world phenomenon (Hilton, 1999). In 1970, U.S. President Nixon called for drastic cuts in U.S. vehicular emissions. General Motors responded with a catalytic converter that provided most of the needed exhaust reductions. The converter, however, required cars to use unleaded fuel. Refiners started to produce lead-free gasoline and the U.S. Environmental Protection Agency (EPA) issued regulations to guarantee the availability of unleaded fuel at all service stations.5 As catalytic converters became standard equipment on most nations’ new vehicles, those nations–rich and poor–developed a demand for unleaded gasoline (USEPA, 1995). Growing concern about lead’s harmful health effects also stimulated nations’ desires to get rid of lead in gasoline. Japan was the first to act. In 1970, 5 Prior to these events Amoco was already producing unleaded gasoline.

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responding to reports of lead poisoning in Tokyo, and fearful of another disaster like the mercury poisoning at Minamata, the government required refiners to lower the lead content of their gasoline. Meanwhile, in the United States, public health studies showed that leaded gasoline imposed severe health burdens on vulnerable populations (Needleman, 1979; Annest et al., 1983). Levels of blood-lead once thought to be tolerable were shown to be harmful and costly. Exhaustive cost–benefit studies also revealed that phase-out produced sizeable net benefit for the population that undertook it. Schwartz et al. (1985) provided persuasive evidence that the benefits of abatement more than justified the cost. By some estimates, the health benefits of lead phase-out exceed the costs by a factor of 13. As poor nations learned of phase-out’s health benefits, they too became more willing to solve the problem. A growing realization that unleaded gasoline did not degrade engine valve seats or other engine parts further stimulated global interest in phase-out (Thomas, 1995; USEPA, 1995; Tunali, 1995; Faiz et al., 1996). 5.2. The ability to eliminate leaded gasoline Growing demand for unleaded gasoline gave U. S. and European refiners major incentives to cut production costs. Extensive anecdotal evidence indicates that cost reductions eventually put unleaded gasoline within the financial grasp of many poor nations.6 The U.S. Environmental Protection Agency observed that as unleaded fuel was becoming the baseline technology, the production and distribution of unleaded fuel was becoming less costly than the production and 6 Two peculiarities of the phase-out process force a reliance on anecdotal data to describe the decline in phase-out costs. First, the actual cost of replacing lead depends heavily on refinery configuration, the amount of lead that is being replaced, the level of octane that the motor fleet requires, and the rate of refinery reconfiguration. Estimates of lead-replacement costs range from eight cents per gallon to replace 2.4 gpg in a simple skimming refinery to four cents per gallon to replace 0.6 gpg in a more complex refinery, to 10 cents per gallon in simple hydro-skimming refineries (USEPA, 1995). Second, other costs of phase-out are also difficult to measure and track. They include the costs of educating the public, developing and maintaining oversight programs, new distribution equipment (especially nozzles and pumps), and subsidies for leaded fuel, Because all of these costs differ so much from place to place, there is no A typical refinery cost to measure or track.

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distribution of leaded fuel (Ditlow, 1982). Quinlan (1994) implies that reductions in the cost of the lead replacements contributed heavily to the overall drop in production costs. A combination of refinery reconfigurations (USEPA, 1995) and non-refinery innovations further reduced total phase-out costs. The tradable permit program, for example, saved U.S. refiners US$225 million and provided a valuable paradigm for cost reductions (Hahn, 1989). As phaseout unfolded, phase-out costs fell, and the cost reductions put phase-out within the reach of many nations. Cost reductions, not income growth, explain the growth in their ability to solve the problem. By overcoming the obstacles to their own phaseout aspirations, richer, early-abating nations increased poorer nations’ ability and will to eradicate automotive lead pollution. Without the pioneering work of their richer predecessors, many poorer nations might still be classified as Anon-abaters rather than as Alateabaters.

6. Implications This paper has shown that, in the case of lead phase-out, poverty has delayed lead phase-out but has not prevented it. This finding, along with the fundamental explanation B that the phase-out achievements of high-income, early abating nations endowed poor countries with the ability and will to solve the problem B yields a number of implications. First, the findings justify greater environmental expectations for low-income countries. Since low income does not mean that a country’s air, land, and water must stay contaminated, poor nations can and should plan to reduce pollution before they become rich.7 7 Poor countries can be expected to make significant abatement progress B albeit at a later time and relying on rich nations’ abatement success B in most situations in which, like lead phaseout: the pollution has significant local impact so that the population that pays for abatement experiences the benefits and therefore has an incentive to undertake it; there are strong incentives to reduce abatement costs, as there were with U.S. and other refiners; and, the process spans a number of decades so that advances developed in rich nations can spread to poor nations. In the presence of these conditions, the optimistic view is justified. Many forms of air pollution including air pollution from fossil-fueled electric utilities, and water pollution from industrial facilities, meet these conditions.

Second, international environmental agreements should consider abatement sequencing. They should expect the rich to go first and the poor to follow. The Kyoto Protocol includes this recognition but in doing so has alienated U.S. leaders and driven President Bush (2001) to oppose the treaty precisely because it requires the United States and other rich nations to go first. Third, simply by resolving their own problems, high-income nations provide invaluable environmental aid to low-income nations. As they battle through the factors that limit their own ability and will to abate, they increase poor nations’ ability and will to curb pollution. Fourth, income’s influence on pollution reduction is probably overrated. The phase-out data show that high income does not guarantee abatement and that poverty does not prevent it. Income-determinist models of environmental recovery require careful reconsideration. Other factors, such as knowledge development and cost reductions seem to exert greater influence and merit greater consideration as policy options. Fifth, Environmental Kuznets Curves for many pollutants probably relocate over time. Since, for many EKC’s, the downward slope begins at the initial abatement income, and since, over time, that income level drops, the curve’s peak gradually moves to the left. The EKC literature does not adequately account for this change and its implications. More than five billion people live in low and lower–middle-income countries. Although these countries might not repair their environments as soon as rich countries, they can expect to make those repairs before becoming rich, especially if high-income countries do the hard and sometimes costly work of solving their own environmental problems and sharing their achievements. The news is good.

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