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Exploring the Carbon Kuznets Hypothesis

  • Georg Muller-Furstenberger

    (University of Bern)

  • Martin Wagner

    (University of Bern)

  • Benito Muller

    (Oxford Institute for Energy Studies)

The Carbon Kuznets hypothesis conjectures an inverse U{shape relation between GDP and carbon dioxide emissions. We investigate a number of empirical problems with this hypothesis by way of both econometric analysis and CGE modelling. The econometric analysis takes into account the possibility of unit root non{stationary regressors. On a panel of 107 countries covering the years from 1986 to 1998 we ¯nd evidence for unit root non{stationarity in log GDP and log emissions. Our discussion therefore focusses of potential pitfalls in estimating the Carbon Kuznets curve in the context of non{stationary panels context. We conclude that current practice in the literature fails to take these potential problems adequately into account. The second conceptual problem considered in the paper is the question of how to inter- pret an observed inverse U{shaped relationship. With the help of a small GCE model, we illustrate the danger of using observed GDP{emission patterns directly as a policy guide. Our model economy, where decarbonization is exogenous, demonstrates in particular that a carbon policy relating to income levels may not be appropriate even in the face of an observed inverse U{pattern between income and emissions.

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Paper provided by EconWPA in its series Others with number 0506009.

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Length: 23 pages
Date of creation: 10 Jun 2005
Date of revision:
Handle: RePEc:wpa:wuwpot:0506009
Note: Type of Document - pdf; pages: 23
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  1. Roger Perman & David I. Stern, 2003. "Evidence from panel unit root and cointegration tests that the Environmental Kuznets Curve does not exist," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(3), pages 325-347, 09.
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  8. Grossman, G.M & Krueger, A.B., 1991. "Environmental Impacts of a North American Free Trade Agreement," Papers 158, Princeton, Woodrow Wilson School - Public and International Affairs.
  9. Martin Wagner & Georg Müller-Fürstenberger, 2004. "The Carbon Kuznets Curve: A Cloudy Picture Emitted by Bad Econometrics?," Diskussionsschriften dp0418, Universitaet Bern, Departement Volkswirtschaft.
  10. Peter C.B. Phillips & Joon Y. Park, 1998. "Asymptotics for Nonlinear Transformations of Integrated Time Series," Cowles Foundation Discussion Papers 1182, Cowles Foundation for Research in Economics, Yale University.
  11. Yandle, B. & Bhattarai, M. & Vijayaraghavan, M., 2004. "Environmental Kuznets Curves: a review of findings, methods, and policy implications. PERC Research study 02-1 update," IWMI Research Reports H044740, International Water Management Institute.
  12. Douglas Holtz-Eakin & Thomas M. Selden, 1992. "Stoking the Fires? Co2 Emissions and Economic Growth," NBER Working Papers 4248, National Bureau of Economic Research, Inc.
  13. Gene M. Grossman & Alan B. Krueger, 1994. "Economic Growth and the Environment," NBER Working Papers 4634, National Bureau of Economic Research, Inc.
  14. Elbert Dijkgraaf & Herman Vollebergh, 2004. "A Note on Testing for Environmental Kuznets Curves with Panel Data," Others 0409001, EconWPA.
  15. BERTINELLI, Luisito & STROBL, Eric, 2004. "The Environmental Kuznets Curve semi-parametrically revisited," CORE Discussion Papers 2004051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Stengos, T. & Millimet, D.L. & List, J.A., 2002. "The Environmental Kuznets Curve: Real Progress or Misspecified Models?," Working Papers 2002-13, University of Guelph, Department of Economics and Finance.
  17. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
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