A dynamic state-level analysis of carbon dioxide emissions in the United States

Highlights

• State-level analysis of carbon dioxide emissions.

• Dynamic panel estimation to account for time series properties.

• Feasible environmental Kuznets curve for carbon dioxide emissions.

• Implications for state environmental policy discussed.

Abstract

As climate change and the regulation of carbon dioxide emissions play an increasingly important role in the global policy debate, careful consideration of the state-level determinants driving emissions must be considered. The importance of state-level determinants in the transmission of carbon dioxide matters especially for a country that differs from coast to coast in energy use and industry makeup like the United States. To add to the policy debate this paper estimates two models that account for the dynamic nature of emissions of carbon dioxide emissions at the state-level from 1980–2010 while taking account of scale, technique, and composition effects. When stochastic trends are taken account of, an environmental Kuznets curve relationship with a feasible turning point is found for carbon dioxide emissions.

Introduction

The regulation of carbon dioxide (CO₂) and other greenhouse gases has come to the forefront of policy debates taking place on the international and state-level alike. Although there is a robust literature on CO₂ emissions from an international perspective, very few authors have considered CO₂ emissions at a sub-national level for the United States. Many states are in fact larger than some developed countries and thus produce more emissions through the scale effect alone. There are many underlying factors in aggregate reported data that matter when it comes to CO₂ emissions. As Stanton et al. (2010) point out, if per capita CO₂ emissions were equal across the United States to that of California, global emissions would fall by 8%. If per capita emissions were equal to Texas, however, global emissions would increase by 7%. Furthermore, state-level analyses of emissions are important because many states have begun to pursue more stringent environmental standards unilaterally than they are required by Federal law (Prasad and Munch, 2012). As a policy tool, some states have implemented renewable portfolio standards that dictate the amount of electricity generated by renewable means. More stringent policies have been adapted, though, such as the cap-and-trade program for CO₂ emissions in California and the Regional Greenhouse Gas Initiative (RGGI). RGGI (2012) is in fact a perfect example of states going beyond Federal regulations to limit CO₂ emissions because it is a coalition of nine Northeast and Mid-Atlantic states that are trying to reduce carbon emissions from electricity by 10% in 2018.

This paper adds to the diminutive literature on state CO₂ emissions by estimating a dynamic state-level model of the determinants of CO₂ emissions while accounting for effects due to the scale, technique, and composition of economic activity that stem from the literature on free trade and the environment. Understanding the determinants of CO₂ emissions from a state-level is certainly important in the crafting of future legislation, and reconsideration of current policies. This paper also contributes to the wider literature on estimating carbon dioxide emissions because it explicitly takes into account the time series properties of emissions, which are seldom addressed. Continuing on, Section 2 briefly discusses the scale, composition, and technique effects that will be used to add structure to the model as well as discusses papers that specifically account for the time-series properties of emissions. Section 2 then concludes with a discussion of works that look at emissions from a state-level perspective. Section 3 develops the dynamic panel model. Section 4 concludes with a discussion of policy implications that stem naturally from the model estimates Fig. 1.