The Link between Economic Complexity and Carbon Emissions in the European Union Countries: A Model Based on the Environmental Kuznets Curve (EKC) Approach

Neagu Neagu

doi:10.3390/su11174753

Abstract

The aim of the paper is to apply the Environmental Kuznets Curve (EKC) model in order to explore the link between economic complexity index (ECI) and carbon emissions, in 25 selected European Union (EU) countries from 1995–2017. The study examines a cointegrating polynomial regression (CPR) for a panel data framework as well as for simple time series of individual countries. In the model is also included the variable ‘energy intensity’ as main determinant of carbon emissions. Depending on economic complexity, the CO2 emissions pattern was found to exhibit an inverted U-shaped curve: in the initial phase, pollution increases when countries augment the complexity of the products they export using and after a turning point the rise of economic complexity suppress the pollutant emissions. The panel cointegration test indicates a long-run relationship between economic complexity, energy intensity and carbon emissions. It was also found that a rise of 10% of energy intensity would lead to a 3.9% increase in CO2 emissions. The quadratic model incorporating ECI is validated for the whole panel as well as for six countries (Belgium, France, Italy, Finland, Sweden and the United Kingdom). The graphical representation of the EKC in these countries is discussed. Policy implications are also included.

Highlights

Under the European Union (EU)’s general energy policy, member states are struggling to reach the assumed national targets regarding energy efficiency, carbon emissions abatement, renewable sources and a decarbonised economy
The effect of energy intensity is positive and statistically significant on lnCO2; for a rise of 10% of energy intensity, carbon emissions increase with 3.93% (FMOLS estimation), respectively 3.72% (DOLS estimation)
The present paper provides a study of the Environmental Kuznets Curve (EKC) model, by replacing the log GDP per capita with economic complexity

Summary

Introduction

Under the European Union (EU)’s general energy policy, member states are struggling to reach the assumed national targets regarding energy efficiency, carbon emissions abatement, renewable sources and a decarbonised economy. Tempted to increase the competitiveness of their products in order to ensure a sustained economic growth rate, EU countries are interested in creating new, sophisticated, knowledge-intensive products. To slow down the growth of energy consumption and increase resources’ efficiency, priority has to be given to large public support for investment in clean energy technologies, development of alternative energy sources (i.e., renewable, nuclear); development of knowledge-intensive sectors of the economy, through investments in fixed capital, and in highly skilled human capital, investments in research and development (R&D) activities and implementation of new energy technologies (i.e., smart grids, carbon capture and storage, carbon capture and use).

Objectives

Methods

Results

Discussion

Conclusion