Tuesday, January 1, 2013

Carbon Emissions, The Environmental Kuznets Curve, and Convergence

I'm going to include one paper on the EKC and one on convergence.

The most popular approaches to explaining historical emissions are the environmental Kuznets curve and the decomposition approach using the Kaya identity. These approaches can also be used to produce simple projections of future emissions given information on the relevant drivers.

The environmental Kuznets curve hypothesis proposes that concentrations or per capita emissions of various pollutants rise and then fall as per capita income increases. Static and dynamic theoretical models are given by Plassmann and Khanna (2006) and Brock and Taylor (2010) respectively, while Carson (2010) provides a recent survey. For carbon dioxide the relevant variable is emissions per capita. Following the original paper on the topic by Grossman and Krueger (1991), the World Bank published an issue of the World Development Report timed for the Rio de Janeiro Earth Summit in 1992 that featured an environmental Kuznets curve for carbon dioxide among various environmental indicators. The econometric estimates showed that per capita carbon emissions rise monotonically with per capita income within the observed range (Shafik, 1994). This result was confirmed by Holtz-Eakin and Selden (1995), which is the classic paper on the carbon EKC. They found also found a monotonic relationship between income per capita and CO2 emissions though the propensity to emit with income declines. Recent papers by Wagner (2008), Vollebergh et al. (2009) and Stern (2010) that use different econometric methods do not substantially change the conclusions despite some intervening papers (e.g. Schmalensee et al. 1998) that claimed that there was an inverted U shaped curve for CO2 with an in sample peak. This is also a paper that has stood the test of time in terms of projected emissions to date, though future projected emissions are lower than Edmonds and Reilly (1983) or RCP 8.5.

A related literature looks at whether per capita emissions are converging over time across countries. If there is convergence in GDP per capita then if the income emissions relation is monotonic there should also be convergence in emissions, at least conditionally. Strazicich and List (2003) examined the time paths of carbon dioxide emissions in twenty-one industrial countries from 1960–1997 to test for stochastic and conditional convergence. They performed estimated both panel unit root tests and cross-section regressions. Overall, they found significant evidence that CO2 emissions have converged. Subsequent research has tested whether this result holds across both developed and developing countries with mixed results (e.g. Aldy, 2006; Westerlund and Basher, 2008; Brock and Taylor, 2010).


Aldy, Joseph E. (2006) Per capita carbon dioxide emissions: convergence or divergence? Environmental and Resource Economics 33(4): 533-555.

Brock, William A. and M. Scott Taylor (2010) The green Solow model, Journal of Economic Growth 15:127–153.

Carson, R. T. (2010) The environmental Kuznets curve: Seeking empirical regularity and theoretical structure, Review of Environmental Economics and Policy 4(1): 3-23.

Edmonds, Jae and John Reilly (1983) Global energy and CO2 to the year 2050, The Energy Journal 4(3): 21-48.

Grossman, G. M. and A. B. Krueger (1991) Environmental impacts of a North American Free Trade Agreement, National Bureau of Economic Research Working Paper 3914, NBER, Cambridge MA.

Holtz-Eakin, Douglas and Thomas M. Selden (1995) Stoking the fires? CO2 emissions and economic growth, Journal of Public Economics 57(1): 85-101.

Plassmann, Florenz and Neha Khanna (2006) Preferences, Technology, and the Environment: Understanding the Environmental Kuznets Curve Hypothesis, Amer. J. Agr. Econ. 88(3) (August 2006): 632–643.

Schmalensee, R., T. M. Stoker and R. A. Judson (1998), ‘World Carbon Dioxide Emissions: 1950-2050’, Review of Economics and Statistics, 80, 15-27.

Shafik N., Economic development and environmental quality: an econometric analysis, Oxford Economic Papers 46, 757-773 (1994).

Stern D. I. (2010) Between estimates of the emissions-income elasticity, Ecological Economics 69, 2173-2182.

Strazicich, Mark C. and John A. List (2003) Are CO2 emission levels converging among industrial countries? Environmental and Resource Economics 24(3): 263-271.

Vollebergh, Herman R.J., Bertrand Melenberg, and Elbert Dijkgraaf (2009) Identifying reduced-form relations with panel data: The case of pollution and income, Journal of Environmental Economics and Management 58(1): 27-42.

Wagner, M., 2008. The carbon Kuznets curve: A cloudy picture emitted by bad econometrics. Resource and Energy Economics 30, 388-408.

Westerlund, Joakim and Syed A. Basher (2008) Testing for convergence in carbon dioxide emissions using a century of panel data, Environmental and Resource Economics 40:109–120.

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