Pathways to reduce CO2 emissions as countries proceed through stages of economic development

Abstract

We propose a new approach to identify pathways for countries to reduce carbon dioxide emissions (CO2) per capita through possible changes in their energy consumption portfolio. Utilizing data from the last half century (1965–2017) for 79 countries, we investigate how changes in the composition of primary energy consumption (i.e. oil, coal, gas and renewables) can contribute to changes in per capita CO2 emissions, depending on the time-varying level of individual countries’ real per capita income. To this end, threshold panel regressions (with common and fixed effects) are estimated to endogenously determine an unknown number of possible pathways (delineated by break points) to reduce emissions. This study provides important policy insights into the effects of switching from one source of primary energy consumption to another on per capita emissions, as nations progress through stages of economic development. Such relative costs can be compared and contrasted (a) across country groupings, (b) through time, as real per capita income changes, and (c) with those of other country groupings that fall within similar per capita income brackets.