The environmental Kuznets curve within European countries and sectors: greenhouse emission, production function and technology

Abstract

Following the environmental Kuznets curve (EKC) literature and the theoretical climate change literature, we analyse the impact of per capita GDP on CO2 emissions at industrial level for several European countries. This relationship is evaluated comparing the adjusted EKC specification – CO2 emission conditioned by the effects of income and final energy-consumption of several energy sources – to the simultaneous equations model, considering the determinants of income. Following Dean (2002) we introduce a second equation that takes into consideration the technological progress, measured by human and physical capital, productivity and R&D expenditure. Theoretically, it is well known that new technology and renewable energy adoptions can force the system to a more efficient economy system in term of environment and in term of quality of life. To verify if environmental policy can influence technological change, we address the effect of R&D expenditures and R&D intensities on output, and simultaneously we test weather the output (measured by the per capita GDP) affects or not the greenhouse gas emissions. In this simultaneous equation model, the shape of the GDP-CO2 relationship appears quite sensitive to both sectors and countries. However, the analysis confirms the existence of an EKC among the European countries and sectors.