Long-Run Dynamics of Gas Emissions, Economic Growth, and Low-Carbon Energy in the European Union: The Fostering Effect of FDI and Trade

Alexandra Horobet,Emanuela Zlatea,Oana Cristina Popovici,Stefania Cristina Curea,Dan Gabriel Dumitrescu,Lucian Belascu

doi:10.3390/en14102858

Alexandra Horobet, Emanuela Zlatea + Show 4 more

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https://doi.org/10.3390/en14102858

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Abstract

The European Union’s environmental goal by 2050 is to become the first climate-neutral continent in the world. This means specific efforts for diversifying the energy mix and investing in low-carbon energy. Our study investigates the nexus among carbon emissions, energy consumption and mix, and economic growth in a modified framework that includes the contribution of inward foreign direct investments and international trade to lowering air pollution. We have used a two-step approach to explore in more detail the links between these variables in 24 EU countries over the period 1995–2018, followed by a panel VECM analysis. Our results indicate that there is a unidirectional link between economic growth and CO2 emissions, which should imply a decoupling of environmental improvement measures from the pace of economic growth. We also find bidirectional causal relationships between low-carbon energy shares in consumption and CO2 emissions, as well as between low-carbon energy share in consumption and GDP per capita, which confirms both pollution haven and the halo effect hypotheses for FDI on gas emissions. However, in the long term, FDI, exports, and imports have positively impacted the reduction in CO2 emissions; therefore, stronger EU investment and trade integration should be promoted to improve the quality of the environment.

Highlights

The increased awareness of the negative impact of climate change on economies has determined common actions at the international level for reducing greenhouse gas (GHG)emissions
Our study investigates the nexus among gas emissions, energy consumption and mix, and economic growth in the European Union, in a modified framework that includes the contribution of inward foreign direct investments and international trade
We examine the impact of economic growth, energy consumption, and low-carbon energy sources on carbon emissions in the European Union using the panel VAR/VEC

Summary

Introduction

The European Union (EU) implemented a greenhouse gas emissions trading scheme in 2005, intending to monitor and reduce carbon dioxide (CO2 ) emissions [1]. Emissions Trading System (ETS) was the first and largest such scheme [2]. Under the European Effort Sharing Regulation, each Member State has agreed to limit the GHG emissions between 2013 and 2020 [3]. EU decided to continue this initiative, and for the period 2021–2030, each Member State has to annually reduce emissions for the sectors not covered by the EU ETS. Since the 1990s, EU countries started to implement environmental taxation schemes [4] to include the costs of pollution and other environmental costs, for penalizing the polluters and providing an appropriate price according to the harm done to the environment [5,6]

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