Role of Environmental Policy Stringency on Sectoral CO2 Emissions in EU-5 Countries: Disaggregated Level Evidence by Novel Quantile-Based Approaches

Abstract

Consistent with the increasing awareness of environmental problems, countries have applied various measures to combat climate change by preventing environmental degradation of the environment. In this context, a set of measures in different areas and sectors have been taken. Although it is possible to consider each of them, instead, using a more comprehensive index, such as the Environmental Policy Stringency Index, can be appropriate in examining the effects of environmental measures in curbing emissions. Accordingly, this research examines the effect of Environmental Policy Stringency Index on sectoral carbon dioxide (CO2) emissions in the European Union Five countries (namely, Germany, Spain, France, United Kingdom, and Italy) by using data for the period 1990/Q2-2020/Q4, performing novel quantile-based approaches. The outcomes show that at higher quantiles, Environmental Policy Stringency Index provides (a) a decrease in building sector CO2 emissions in France, the United Kingdom, and Italy; (b) a decline in industrial combustion sector CO2 emissions in France and Italy; (c) a curb power sector CO2 emissions in Germany, Spain, and France; (d) a decrease in transport sector CO2 emission in Germany and France; (e) there are causalities from Environmental Policy Stringency Index to sectoral CO2 emissions across quantiles except for some ones; (f) the outcomes are verified as robust. The outcomes prove the differentiating effects of Environmental Policy Stringency Index across sectors under the empirical examinations, quantiles, and countries. Thus, the study discusses various policy endeavors, such as consideration of the varying structure of environmental measures, application of nonlinear approaches, and focusing on some sectors to go fast in curbing sectoral CO2 emissions.