Does the Kyoto Protocol have a structural impact on the environmental Kuznets curve? An application of the varying coefficient model

Since the Kyoto Protocol entered into force in 2005, researchers have investigated whether it could achieve the expected results. This paper explores the potential structural break caused by the Kyoto Protocol and its impact on the environmental Kuznets curve (EKC) via a novel procedure in three groups of countries using 1951–2017 data. Our proposed procedure is to use the varying coefficient model (VCM) along with the improved Akaike information criterion to detect yearly structural breaks from 1997, the year the Kyoto Protocol was adopted, to 2012, the year the first commitment came to an end. The VCM also allows us to analyze the magnitude and direction of a break, and its estimation technique further enables us to plot an empirical EKC trajectory. The empirical results show that a downward structural break is identified in 2007 for those countries that ratified the Kyoto Protocol and stayed bound to their reduction targets. For these countries, the EKC displays an inverted-U shape with a turning period, not a point. Since the break occurs during this transition, it appears to accelerate the falling rate of emission intensity and promote their progression into the stage of environmental improvement. Therefore, domestic ratification and compliance are the keys to the downward transition of the EKC. Our results shed light on the policy implications of international regulation, especially regarding the importance of domestic compliance with the recent EU carbon border adjustment mechanism.