Better to grow or better to improve? Measuring environmental efficiency in OECD countries with a Stochastic Environmental Kuznets Frontier

Oleg Badunenko, Marzio Galeotti and Lester Hunt

No 2021.28, Working Papers from Fondazione Eni Enrico Mattei

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.

Keywords: Environment and growth; Environmental Kuznets Curve; CO2 emissions; Panel data; OECD countries; Stochastic frontier approach; Stochastic Environmental Kuznets Frontier; Environmental Policy Stringency (search for similar items in EconPapers)
JEL-codes: C13 C33 O44 Q54 Q56 (search for similar items in EconPapers)
Date: 2021-11
New Economics Papers: this item is included in nep-agr, nep-eff, nep-ene and nep-env
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Working Paper: Better to grow or better to improve? Measuring environmental efficiency in OECD countries with a Stochastic Environmental Kuznets Frontier (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2021.28

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