Climate Goals Hinge on Support for Developing Nations

The Yale Environmental Performance Index (EPI) 2024 Report states that there is a positive correlation between a country’s living standards and its progress toward achieving environmental goals. We wanted to explore that relationship in hopes of both shedding light on paths to making further progress toward environmental sustainability and highlighting any roadblocks. As Brookings noted in its commentary, “Developing Countries are Key to Climate Action,” it is imperative that any solutions for global climate change take into consideration the competing goal of increasing living standards in developing nations.

We ran regressions on 175 countries in cross section to quantify how living standards (as measured by 2023 per capita GDP) affect progress on environmental issues (as measured by the 2024 EPI). From these data, we can verify that per capita GDP is strongly correlated with EPI scores. Like the Yale study, we noticed that the gains from higher per capita GDP diminish as nations become wealthier. We were able to model this by taking logs of per capita income. As the chart shows, an increase in per capita GDP from 4 to 5 ($10,000 to $100,000) is associated with an increase of 15 points in the overall EPI score. The goodness of fit (adjusted R2) for this regression is 60.4 percent.

In general, affluent societies can afford to devote more resources to improve the environment. But there is a tradeoff: As the Yale report notes, higher per capita GDP gives a nation the means to produce/purchase more goods and services, implying more GHG emissions, not less. For each nation, the balance of these competing wants – more goods versus a cleaner environment – will determine the progress toward environmental goals.

We extended this line of inquiry by asking if the tradeoff differs for various environmental goals. The Yale data identify three main goals – environmental health, climate change, and ecosystem vitality. We regressed per capita GDP against these three EPI subcomponents separately. Our hypothesis was that the correlation would be strongest where the environmental issues are most tangible for nations’ citizens – environmental health. The wealthier a nation is, the more society will be willing to spend to buy clean air and water, waste treatment, and elimination of poisons. People see the local environment every day and it impacts their lives directly. In contrast, nations may be less inclined to devote resources to environmental issues where their populations are not immediately affected, such as climate change and ecosystem vitality.

It turns out that per capita GDP actually is significantly correlated with all three environmental goals – environment, climate, ecosystems. However, the three correlations are very different in terms of degree. The following table shows that the standard of living is a selective driver of environmental goals.

Increases in per capita GDP are correlated with huge gains in the environmental health score (EPI-Environment), and the regression has by far the closest fit. The impacts of per capita GDP on climate (EPI-Climate) and ecosystem (EPI-Ecosystem) goals are much more muted, with weaker goodness of fit. The strong correlation with the Environment component is the main driver of the correlation with the overall EPI. These results imply that higher living standards alone are not enough to bring about meaningful improvements on climate change and ecosystem vitality.

Based on IMF Greenhouse Gas Emissions, we estimate that developing countries account for 75.8 percent of current emissions. This is likely to skew further as these countries industrialize. Less affluent nations have little incentive to make progress on climate and ecosystem goals. As the Brookings commentary points out, with limited resources, these countries have development imperatives that both supersede and counter environmental goals.

The only way to get buy-in on climate initiatives from developing nations is for developed nations to offer aid. Developed nations need to help with industrialization in exchange for movement away from polluting production processes, especially the burning of coal, and toward cleaner technologies.

More generally, we believe climate goals need to become bigger priorities, even in developed nations. As with any public good, government needs to take the lead because people and businesses will act in their best interest individually, resulting in a free rider problem – people get very little incremental personal benefit from their own expenditures on these initiatives. Also, governments need to more effectively educate their populations that progress on climate goals will improve lives in the future.

Note: We accessed the Yale EPI and the IMF GHG datasets from the Haver ESG database and the comparable country-specific GDP per capita figures from the Haver WDI database.

References: Bhattacharya, A., Kharas, H., McArthur, J. W., (2023). Commentary: Developing Countries Are Key to Climate Action. Washington, DC: Brookings. March 3, 2023. https://www.brookings.edu/articles/developing-countries-are-key-to-climate-action/

Block, S., Emerson, J. W., Esty, D. C., de Sherbinin, A., Wendling, Z. A., et al. (2024). 2024 Environmental Performance Index. New Haven, CT: Yale Center for Environmental Law & Policy. epi.yale.edu