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Economic & social determinants of CO₂ emission trends




Elhemri, Maged A. Hamed, author
Kling, Robert W., advisor
Seidl, Andrew F., committee member
Graff, Gregory D., committee member
Costanigro, Marco, committee member

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The increase in the concentration of carbon dioxide caused by human activity is a major cause of climate change, which is the most prominent international environmental problem in recent decades. This research aims to study the relationship between economic growth and CO2 emissions resulting from production-related fossil fuel burning, under the assumptions of the Environmental Kuznets Curve (EKC), with an emphasis on the impact of underlying variables which may affect CO2 emissions through the "technique" variables (structure and technology). From our survey of the literature, we extract the general trends of the CO2 EKC hypothesis, studies which mostly follow the traditional method of the standard regression model (with emissions as a quadratic function of GDP per capita). Many of those studies confirm the EKC hypothesis but find that the critical value, or turning point, is at a relatively high level of GDP. Generally speaking, those findings were confirmed in all three levels of our analysis. In our Level 1 analysis, we develop a standard EKC regression model as a benchmark, using a panel data sample. The results confirm the EKC hypothesis, where CO2 emissions have a positive relationship to the level of income before the EKC threshold and then a negative relationship beyond the threshold (at a relatively high level of GDP). Then a subsample analysis, on the basis of education quality, transparency, regulatory effort, and democracy, suggests that underlying variables may have a beneficial effect on emissions efficiency; on the other hand, the trade openness subsample analysis may indicate a detrimental effect on emissions efficiency, iii though further study is needed to determine the effect of the scale factor and the technique factor that may tend to induce or inhibit the down-turning of the CO2 EKC. In our Level 2 analysis we break out the technique factor (structural and technological) from the scale factor and the result confirms the EKC hypothesis and supports the idea that a downturn is due to improved technology or emissions efficiency. The analysis contains additional information about the role of structural change in explaining the EKC. When countries become affluent, they start to demand proportionally more services, decreasing the pollution intensity of production, though with the possibility of two-way causality between industrial share and income. The Level 3 analysis isolates the impact of each underlying variable on its own, ceteris paribus, to investigate which variables may tend to encourage or inhibit the down turning of the CO2 EKC through the technique factor; the results confirm the EKC hypothesis. Moreover, we find that some underlying variables (Education, Trade Openness, and Regulatory Effort) affect the relationship between carbon dioxide emissions and income with beneficial impact on the emissions efficiency of production; others (Transparency and Democracy) may not have the same effect on emissions efficiency, while evidence is insufficient to confirm a negative impact of global free riding ability. By comparing the effects of the underlying variables both in terms of GDP elasticity effects on emissions and of the turning points, in both Levels 1 and 3, we find that Education and Regulatory Effort affect the income-emissions relationship with a beneficial impact on emissions. For Trade Openness, there is a detrimental impact but the net beneficial effect of high openness compared to low openness suggests a benefit from the composition effect relative to any scale effect; openness lessens the negative impact of affluence. Regarding Democracy and Transparency, there is a contradiction in the conclusions between Level 1 and 3, and results also contradict our expectation, which leads us to not draw any strong implications overall.


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