Predictors of global carbon dioxide emissions: Do stringent environmental policies matter?

Abstract

This study examines potential predictors of Carbon Dioxide (CO2) emissions with a focus on the effect of the Organization for Economic Co-operation and Development’s environmental policy stringency measure which is an internationally comparable indicator of the stringency degree of environmental policy instruments. The study uses a 21-year (1995–2015) panel dataset of 15 large greenhouse gas emitter countries distinguished between high-income and middle-income economies. Reflecting both demand- and supply-side determinants of CO2 emissions, the regression model includes control variables such as industrialization, trade openness, income per capita, energy productivity, and international investment. The results show that higher environmental policy stringency does not help in reducing the CO2 emissions, rather, it significantly gives rise to CO2 emissions in the cases of the all sample and middle-income economies. Additional findings provide no support for the presence of the global adjustment pattern of the environmental Kuznets curve since CO2 emissions and income are found positively associated in both high-income and middle-income country groups and the nexus is even higher in magnitude for high-income economies. Increases in the levels of industrialization and trade openness lead to more CO2 emissions, whereas an increase in energy productivity is considerably mitigating the emissions in both high-income and middle-income economies. Inward foreign direct investment stocks are negatively associated with CO2 emissions for middle-income countries, while outward foreign direct investment stocks-CO2 emissions nexus is positive in high-income countries. Overall evidence suggests that CO2 mitigation actions in both middle-income and high-income countries need to encourage energy productivity and redesign pro-environmental policies by considering the industrial structures of countries.