Better to grow or better to improve? Measuring environmental efficiency in OECD countries with a stochastic environmental Kuznets frontier (SEKF)

Oleg Badunenko*, Marzio Galeotti, Lester Hunt

*Corresponding author for this work

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Abstract

The standard approach to the Environmental Kuznets Curve (EKC) holds that as a country develops and GDP per capita grows environmental degradation initially increases but eventually it reaches a turning point where environmental degradation begins to decline. Environmental degradation takes many forms, one of them being emissions of harmful gases. According to the EKC concept, a country can reduce emissions by ‘growing’. The standard approach implicitly assumes that a country emits as little as possible for its economic development, whereas in reality, a country might emit above the best attainable level of emissions. Therefore, emissions could be reduced before and after the turning point by becoming more environmentally efficient – i.e., ‘improving’ the emissions level. This article proposes a Stochastic Environmental Kuznets Frontier (SEKF) which is estimated for CO2 emissions for OECD countries and used to benchmark each country before and after the turning point differently, thus, indicating how a country could ‘grow’ and/or ‘improve’ to reduce its CO2 emissions. Additionally, we analyse the role of the stringency of environmental policies in reducing a country’s carbon inefficiency measured by the distance from the benchmark EKC and find widespread carbon inefficiencies that could be reduced by more stringent market-based environmental policies.
Original languageEnglish
Article number106644
Pages (from-to)1-15
Number of pages15
JournalEnergy Economics
Volume121
DOIs
Publication statusPublished - 21 Mar 2023

Keywords

  • environment and growth
  • environmental Kuznets curve
  • CO2 emissions
  • panel data
  • OECD countries
  • stochastic frontier approach
  • stochastic environmental Kuznets frontier
  • environmental policy stringency

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