Club convergence and clustering of U.S. energy-related CO2 emissions

This study examines the convergence of energy-related carbon dioxide emissions among a panel of U.S. states between the period 1960–2010. This examination is carried out by means of a two-stage procedure. In the first stage, we conduct an endogenous grouping, regression-based convergence test. Unlike previous studies, this methodology endogenously identifies groups of states with emissions that are converging to a similar steady state growth path over time. In the second stage, we evaluate the conditional rate of convergence for the whole sample and for each club using panel data, fixed effects models that control for unobserved, time-invariant heterogeneous effects. More specifically, we examine the rates of convergence conditional on certain structural and non-structural characteristics of the state economy. Results from stage one and stage two suggest that one group of twenty-six states is converging to a unique steady-state equilibrium, and otherwise, the remaining states are diverging. Finally, we discuss different policy approaches to mitigating carbon dioxide emissions based on the club convergence hypothesis.