The potential of material productivity alongside energy productivity in climate mitigation: Evidence from convergence tests in the EU28

Abstract

This study argues that improvements in material productivity might pave the way for a substantial reduction in emissions when adopted alongside energy productivity policies. We, therefore, compare the convergence pattern of material productivity with that of energy productivity from the mitigation perspective. To this end, we apply (un)conditional β, stochastic and club convergence tests to energy and material productivity data for the EU28 countries. From the methodological perspective, (i) we employ both cross-section and panel data estimators to test (un)conditional β-convergence; (ii) to test stochastic convergence, we use the newly-developed transformed Lagrange Multiplier (LM) and Residual Augmented Least Squares LM (RALSLM) unit root tests allowing for structural breaks in data; (iii) for club convergence analysis, we use the log-t test and endogenous data-driven algorithm proposed by Phillips and Sul (PS) (2007). While the estimated parameters find conditional β-convergence in energy productivity, they do not produce convincing evidence for material productivity. The unit root test results show the existence of stochastic convergence in both variables. The club convergence results reveal that there are six and five clubs for energy and material productivity, respectively. This means that although multiple equilibria exist for both variables of interest, material productivity seems to display a more homogeneous structure compared to energy productivity. According to our findings, we conclude that material productivity seems to have a greater potential for further reductions in emissions once policies are directly targeted for efficient use of material, which can enable the EU to achieve to become carbon-neutral by 2050.