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Is the Green Solow Model Valid for \(\hbox {CO}_{2}\) Emissions in the European Union?

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Abstract

This paper addresses the \(\hbox {CO}_{2}\) emission patterns of the European Union from 1950 to 2010, and examines the validity of the Green Solow model, which simulates \(\hbox {CO}_{2}\) emissions growth by including only Solow forces and assuming emission intensity growth to be exogenous and constant. This study verifies that an environmental Kuznets curve (EKC) trajectory exists for per capita \(\hbox {CO}_{2}\) emissions in the European Union, that emission intensity growth is decreasing over time, and that the decreasing intensity growth reflects variations of the dependent variable in the specifications of the Green Solow model. The critique by Stefanski (On the mechanics of the Green Solow model. OxCarre Research Paper 47, OxCarre & Laval University, Oxford, 2013) of the Green Solow model assumption of exogenous and constant intensity growth is validated. The EKC is defined as the emissions plotted against income and emission intensity is defined as the ratio of emissions to income. The EKC and emission intensity share identical definitions and similar transition trajectories over time. The transition of the EKC trajectory and decline in emission intensity growth began before worldwide attention was focused on global warming.

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Notes

  1. The Solow growth model (Solow 1957) is a widely used growth model in the field of macroeconomics. The model involves a strong assumption for constant technology progress in a steady-state economy over time. Income, population and capital grow at the same rate. Barro (1991) empirically investigated the Solow growth model and verified that per capita income converged from the initial to steady-state level.

  2. An early version of this model was proposed in a working paper (Brock and Taylor 2004).

  3. The Solow forces mentioned in this study involve saving rates and population growth rates. Saving rates are regarded as an investment that contributes directly to capital accumulation.

  4. CEIG is referred to as the growth rate for the ratio of \(\hbox {CO}_{2}\) emissions to income.

  5. Convergence is a mathematical term referring to the notion that some sequences approach a limit over time. This study defines the convergence of \(\hbox {CO}_{2}\) emissions as the tendency for the time series of a panel of countries to approach the steady-state levels.

  6. From a sustainability perspective, a series of EKC analyses examining the interaction between pollution and income emerged after the development of the EKC by Grossman and Krueger (1995).

  7. Six E.U. countries (the Czech Republic, Estonia, Latvia, Lithuania, Slovakia, and Slovenia) are excluded from this study because their \(\hbox {CO}_{2}\) emission data available through the Carbon Dioxide Information Analysis Center do not cover the entire study period (1950–2010). The 21 countries examined in this study are Austria, Belgium, Bulgaria, Cyprus, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Spain, Sweden, and the United Kingdom. The CDIAC data measure emissions as thousands of metric tons of carbon emitted from fossil fuel burning.

  8. The EU countries are also included.

  9. The few exceptions to this trend occurred shortly before the end of the study period.

  10. Alternatively, the individual trend of each country could be estimated. However, the purpose of this study is not to identify individual patterns, but the common trend. Thus, the trends of individual countries are not estimated in this study.

  11. The fixed effects models are preferred over random effects models when the null hypothesis of Hausman tests is rejected as fitting random effects models, and are favored over ordinary models when the null hypothesis of likelihood ratio tests is rejected as fitting fixed country effects models.

  12. Thoroughly, the decreasing and increasing trends of the forecasts are additionally tested using Mann–Kendall trend tests. Table 2 presents the test results. The forecast CEIG rates in most of the 21 countries are declining. The only exceptions are Portugal, with a significant increase, and Malta and Spain, with no significant trend.

  13. The forecasts represent the common trend of the countries studied and not the trend of any individual country.

  14. Although the forecast rates of CEIG in some countries (seven of the 21 E.U. countries) remain positive, the rates for the other 14 countries (Austria, Belgium, Denmark, France, Germany, Ireland, Luxembourg, Malta, the Netherlands, Poland, Portugal, Spain, Sweden, and the United Kingdom) are negative in the long term. The rates in Germany are negative over the entire study period.

  15. The short version represents an absolute convergence holding all other variables constant. The short version possesses identical parameter values across countries, differing only in the response to initial emission conditions. The short version was referred to by Brock and Taylor (2010) as “absolute convergence in emissions,” under which the group of countries share the same parameter values, such as saving rates, population growth rates, technology progress, and capital depression.

  16. The long version represents a conditional convergence by allowing variations in other critical variables. The long version unbundles the determinants of the steady state. The long specification is a function containing independent variables such as initial emissions, saving rates, population growth rates, technology progress, and capital depression. The long specification was referred to as “conditional convergence in emissions”.

  17. CEIG is defined as the change ratio of \(\hbox {CO}_{2}\) emission to GDP. It is a function of the dependent variable (growth of \(\hbox {CO}_{2}\) emissions) and income. Hence, the CEIG forecasts are introduced into the regression specifications as instrumental variables.

  18. According to the data availability from the sources, the data of saving rates are not available in 1950–1969 for Bulgaria, Germany, Hungary, Malta, and Poland, and in 1950–1959 for Romania.

  19. Because Models 1 and 2 are used to test whether CEIG reflects the variations of the dependent variable in the empirical specifications of the Solow growth model used in previous studies, they are not new structural models. Therefore, this study does not construct a new structure model for \(\hbox {CO}_{2}\) emissions growth and does not conduct specification dialog tests for the models.

  20. The data are collected from CDIAC and Penn World Table. Several missing data in 1950–1953 are added by using extrapolation methods.

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Acknowledgments

This research was supported by the Ministry of Science and Technology under grant no. 102-2410-H-034-035. The author thanks the editor and two anonymous reviewers for their helpful comments. Appreciation is also expressed to Ms. Show-Yun Chen for data clearing, Dr. Shyue-Cherng Liaw for assistance in conducting the Mann–Kendall trend test, Dr. Chih-Hsing Liao and Dr. Chien-Ho Wang for reviewing the first draft of this paper, and Dr. Daigee Shaw and Dr. Kwo-Dong Wey for their comments when the first draft of this paper was presented at the 2013 Hwa-Kang Economic Forum and Cross-Strait Economic Symposium. The author takes sole responsibility for the content of this article.

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Chen, WJ. Is the Green Solow Model Valid for \(\hbox {CO}_{2}\) Emissions in the European Union?. Environ Resource Econ 67, 23–45 (2017). https://doi.org/10.1007/s10640-015-9975-0

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