The Relationship between Consumption and CO 2 Emissions: Evidence for Portugal

José Belbute and Alfredo Pereira

Sustainability, 2021, vol. 13, issue 21, 1-16

Abstract: This paper establishes an empirical relationship between CO 2 emissions from burning fossil fuels and household consumption of nondurable goods and services. Using a typical life cycle-permanent income hypothesis framework, we reject the hypothesis that inclusion of CO 2 emissions in the consumption function is not supported by the data. Furthermore, our results suggest the existence of a distaste effect or negative state dependence effect. This result has important policy implications as it suggests that decarbonizing the economy would ultimately stimulate household consumption. Our results also have implications for both the cyclical behavior and the smoothing process of consumption, which depend on the branch of the environmental Kuznets curve that the country is on as well as on the prevalence of intertemporal dependent preferences.

Keywords: household consumption; CO 2 emissions; Portugal (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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