Environmental Engel Curves

Environmental Engel curves (EECs) plot the relationship between householdsÕ incomes and the pollution embodied in the goods and services they consume. The curves provide a basis for estimating the degree to which aggregate environmental improvements, which come in part from changing consumption patterns, can be attributed to income growth. We calculate a set of annual EECs for the United States from 1984 to 2012, revealing three clear results. First, EECs are upward sloping: richer households are indirectly responsible for more pollution. Second, EECs have income elasticities of less than one: pollution increases less than one-for-one with income. Third, EECs have been shifting down and becoming more concave over time: at every level of income households are responsible for decreasing amounts of pollution. We show that even without changes to production techniques, the pollution necessary to produce the goods and services American households consume would have declined up to 12 percent, despite a 19 percent increase in real household after-tax incomes. Most of this improvement is attributable to households consuming a less pollution-intensive mix of goods, driven about equally by two factors: household income growth represented by movement along inelastic EECs; and economy-wide changes represented by downward shifts in EECs.