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Sources of emission reductions: Market and policy-stringency effects

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  • Hille, Erik
  • Shahbaz, Muhammad

Abstract

International trade and economic development affect air emissions. Previous studies have decomposed their effects into scale, composition, and technique effects. While the scale and composition effects occur through market responses, the technique effect is a policy-stringency influence through the mix of environmental policies. This study analyzes whether the market or policy-stringency effects are more prominent. Previous studies have been unable to adequately separate the market and policy-stringency effects. To independently measure the technique effect, we use two indicators of policy stringency, i.e. shadow prices of energy and industrial energy prices. These policy stringency measures are treated as endogenous. The effects on six types of air emissions are estimated utilizing a sector-specific, international panel dataset that includes newly industrialized and former transition economies. The empirical results show that the major source of emissions reductions is the policy-stringency effect through carbon-related policies. Pollution offshoring to countries with weaker carbon-related regulation has a minor role in the reduction of air emissions.

Suggested Citation

  • Hille, Erik & Shahbaz, Muhammad, 2019. "Sources of emission reductions: Market and policy-stringency effects," Energy Economics, Elsevier, vol. 78(C), pages 29-43.
  • Handle: RePEc:eee:eneeco:v:78:y:2019:i:c:p:29-43
    DOI: 10.1016/j.eneco.2018.11.006
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    More about this item

    Keywords

    Air pollution; Policy stringency; Pollution offshoring; Energy prices;

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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