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Economic growth and energy regulation in the environmental Kuznets curve

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Abstract

This study establishes the existence of a pattern of behavior, between economic growth and environmental degradation, consistent with the environmental Kuznets curve (EKC) hypothesis for 17 Organization for Economic Cooperation and Development (OECD) countries between 1990 and 2012. Based on this EKC pattern, it shows that energy regulation measures help reduce per capita greenhouse gas (GHG) emissions. To validate this hypothesis, we also add the explanatory variables: renewable energy promotion, energy innovation processes, and the suppression effect of income level on the contribution of renewable energy sources to total energy consumption. It aims to be a tool for decision-making regarding energy policy. This paper provides a two-stage econometric analysis of instrumental variables with the aim of correcting the existence of endogeneity in the variable GDP per capita, verifying that the instrumental variables used in this research are appropriate for our aim. To this end, it first makes a methodological contribution before incorporating additional variables associated with environmental air pollution into the EKC hypothesis and showing how they positively affect the explanation of the correction in the GHG emission levels. This study concludes that air pollution will not disappear on its own as economic growth increases. Therefore, it is necessary to promote energy regulation measures to reduce environmental pollution.

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Notes

  1. Since the Club of Rome was founded, a recurring economic problem has been the relationship between economic growth and public concern for environmental issues. The empirical EKC model is a popular means of analyzing the relationship between economic growth and environmental pollution. There is currently a large body of literature on EKCs (Grossman and Krueger 1991; Selden and Song 1994; Hilton and Levinson 1998).

  2. IPPC (2013): CO2 is by far the main contributor to anthropogenic GHG emissions (CO2 accounts for 76.6 % of GHGs: 56.6 % is from fossil fuels, 17.3 % from deforestation, and 2.8 % from other sources).

  3. Both instruments (AGEDR it and INFLAT it ) are plausible and applicable to GDPpc it (Lin and Liscow 2013) as they are sensibly reliable and correlated with GDPpc it without affecting the quality of environmental pollution levels (GHGpc it ).

  4. Autocorrelation corrections are included when there is a problem as a result of the simultaneity bias introduced by reverse causality between GDPpc it and GHGpc it .

  5. The estimation of the turning points for the cubic model used the following formulation (Diao et al. 2009):

    $$ Xj=\frac{-{\beta}_2 \pm \sqrt{\beta_2^2-3{\beta}_1{\beta}_3}}{3{\beta}_3},\forall j=1,2 $$
    (14)

    To estimate the turning points, it is necessary to make a change in the coefficient \( {\widehat{\beta}}_1 \) since the breaking point where the function reaches the maximum and minimum value depends on PRENEW. When the PRENEW variable appears in the moderate model GDPpc, it will affect the coefficient of the first grade. Consequently, in the coefficient \( {\widehat{\beta}}_1^{*}={\widehat{\beta}}_1+{\widehat{\beta}}_6*\operatorname{PRENEW} \)), PRENEW takes as its median value (23.24), justified by the asymmetric distribution of that variable. Therefore, the model’s breaking points have to be estimated from a \( {\widehat{\beta}}_1^{*}=\left(4.12\operatorname{E}-07+1.18\operatorname{E}-09*23.24\right)=4.4\operatorname{E}07 \) coefficient.

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Authors and Affiliations

  1. Department of Political Economy and Public Finance, Economic and Business Statistics and Economic Policy, University of Castilla-La Mancha, Cuenca, Spain

    Daniel Balsalobre Lorente

  2. Department of Spanish and International Economics, Econometrics and Economic History and Institutions, University of Castilla-La Mancha, Cuenca, Spain

    Agustín Álvarez-Herranz

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  1. Daniel Balsalobre Lorente
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Lorente, D.B., Álvarez-Herranz, A. Economic growth and energy regulation in the environmental Kuznets curve. Environ Sci Pollut Res 23, 16478–16494 (2016). https://doi.org/10.1007/s11356-016-6773-3

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