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Preliminary version; please do not quote.


Another look at CO2 emissions modelling: the role of energy prices in developed countries

M. Rodríguez and Y. Pena-Boquete * , Applied Economics, Universidade de Vigo, Spain

Abstract--Climate change due to the emission of greenhouse gases (GHGs) is a critical global environmental problem. In particular, CO2 emissions represent about 80% of GHGs. For this reason, we need a good modelling approach capable to forecast in the short and medium term the evolution of CO2 emissions in order to: (i) design the best policies to reduce GHG emissions and (ii) allow businesses regulated by the European Union Emission Trading Scheme to anticipate the evolution of the European carbon emissions and its policy implications. This paper examines the relationship between CO2 emissions, GDP and the energy consumption in developed countries. A panel data analysis for the period 1980 to 2004 is applied. The findings reported in this piece of research confirm the suspicion in the literature that the relationship among CO2 emissions and GDP may be the result of spurious statistical correlations. Therefore that could be evidence against the EKC hypothesis. Thus the IPAT model and EKC based on GDP as an explicative variable can lead to misleading results.

Index Terms--CO2 Emissions, Econometric Analysis, Energy Consumption, Energy Prices, Environmental Kuznet Curve, GDP.


E RLICH and Holdren (1971) suggested the IPAT framework as a way to analyse the determinants of

environmental impact from economic development. Accordingly there is an important strand of the literature that

tries to relate CO 2 emissions with Gross Domestic Product (GDP) or with population growth, or with both variables simultaneously. For instance, Dietz and Rosa (1997) found that there is a linear relationship between the size of population and CO 2 emissions for a cross section data on 111 countries. Additionally it includes the weight of the industry in economic activity as a proxy for the level of environmentally damaging technology apart from per capita GDP. This should not be surprising as long as it is capturing a scale effect. As a result, they concluded that demographic

* M. Rodriguez gratefully acknowledge the financial support from Spanish Ministry for Science and Education and ERDF (Projects SEJ2006- 12939/ECON and ECO2009-14586-C02-01ECON), and the Galician government (Project INCITE08PXIB300207PR). M Rodriguez (e-mail: miguel.r@uvigo.es); Y. Pena (e-mail:

y.penaboquete@uvigo.es); Facultade Empresariais e Turismo, 32004 Ourense, Spain.

inertia will prevent us from realise in population growth to slow down CO 2 emission rates. That conclusion connects with the Malthusian tradition. The negative environmental impact caused by demographic pressure, as outlined previously by other authors such as Daily and Erlich (1992), Zaba and Clarke (1994) or Birdsall (1992), may arise through a double mechanism: the larger the population (i) the greater the energy demand from industry and transport services, and (ii) the greater the deforestation and land use changes.

Following the framework from Dietz and Rosa (1997), Martínez-Zarzoso et al. (2007) considered additionally the energy intensity as a proxy variable to measuring the level of

environmentally damaging technology. By applying panel data econometrics they reached different patterns for old and new EU members. For instance, the elasticity emission- population is lower than unity for the former, whereas for the later is 2.73, which is in accordance with the higher marginal propensity to emit in less developed regions as reported in the literature. It remains unclear whether a demographic decline will curb CO 2 emissions since there is an increase in the number of households simultaneously to a households size decrease in most European accession countries (MacKellar et al., 1995). As a result, Martínez-Zarzoso et al. (2007) argue that “a review of the Communitarian emissions policy, that takes into account the characteristics of the new EU members,

would be desirable. [

Several factors must be taken into

account when establishing the allocation of emission quotas to each country, including population dynamics, income and productive structures and energy intensities”. Furthermore, they found a negative elasticity between emissions and urbanization for more developed countries which has important policy implications: policymakers and experts should recognize the potential value of cities for long-term sustainability.


There are plenty of examples that analyse this sort of relationship, most of them for a cross section data on countries and more recently for panel data, but usually the population is included in the dependent variable (per capita emissions) instead of being treated as a predictor in the model. The underlying idea behind most of papers that analyse the IPAT framework is the Environmental Kuznets Curve (EKC) 1 . The theoretical explanations of the EKC hypothesis are based on three effects: the scale effect, the structure effect and the

1 See also Dinda and Coondoo (2006), Dinda (2004) and Verbeke and De Clercq (2006) for discussions about the EKC topic.


abatement effect (Grossman and Krueger, 1991; Islam et al., 1999). Besides international trade may influence EKC as a consequence of stricter environmental regulations in rich countries (see for instance He, 2007). This situation is illustrated by the so-called Pollution Haven Hypothesis (PHH). Thus even though rich countries may have be experiencing a change in their production structure by outsourcing the production of pollution intensive products, their consumption structure remains unchanged (Vishal, 2011). However, it remains unclear the impact of international trade from the empirical EKC literature (Stern, 2004). By taking a step further in this reasoning, Barrett and Graddy (2000) argues that the functional form of EKC may be conditioned by policy (environmental regulations, electoral processes, level of democracy, etc.). But this idea may be controversial as Shen and Hashimoto (2004) find some evidence of an EKC in China over the last decade of the 20th century. Finally Porter and van der Linde (1995) assert that environmental protection can promote economic growth by increasing efficiency and stimulating technical progress. Thus income may well be endogenous.

The vast majority of investigations regarding the existence of an EKC EKC for per capita CO 2 emissions concentrate on cross-section and panel data. See for instance, among many others, Müller-Fürstenberger and Wagner (2007), Aldy (2007), Friedl and Getzner (2003), Holtz-Eakin and Selden (1995), Shafik and Bandyopadhyay (1992), Shafik (1994), Tucker (1995), Cole et al., (1997), Roberts and Grimes (1997), Dijkraaf and Vollebergh (1998), Galeotri and Lanza (1999), Kahuthu (2006), Halkos and Tsionas (2001), Bertinelli and Strobl (2004), Martinez-Zarzoso and Bengochea-Morancho (2004), Bradford et al. (2005), Liu (2005), Vollebergh et al. (2005), Galeotti et al. (2006), Aldy (2005), Moomaw and Unruh (1997), Schmalensee et al. (1998), Vincent (1997). Most papers concentrate on cross- section and panel data. Studies for single countries most often address developing countries (e.g. Patel et al., 1995; Vincent, 1997) even though there are some exceptions addressing industrialized countries like De Bruyn et al. (1998), Moomaw and Unruh (1997) and Friedl and Getzner (2003). A good example is De Bruyn et al. (1998) who concluded that their results are consistent with the notion that an EKC estimated from pooled data need not hold for specific individual coun- tries. Furthermore, some papers like Dijkraaf and Vollebergh (1998) indicate that the relationship between income and carbon emissions varies among nations. Finally, some researches look at a single country rather than a group of countries but by taking a much longer period (around 100 years). This has been done for USA (Tol et al., 2011), Sweden (Lindmark, 2002; Kriström and Lundgren, 2005) and for a large number of countries (Lindmark, 2004). They find strong evidence for an EKC.

The EKC literature leads to inconclusive results about this hypothesis. In fact there are many examples against this hypothesis. For instance, Holtz-Eakin and Selden (1995), Huang et al. (2008), Brock and Taylor (2004, 2005), Galeotti et al. (2009), Wagner (2008), Marrero (2010), Martinez-

Zarzoso and Maruotti (2011). But generally speaking papers that do not found evidence of EKC do found a positive relationship between per capita income and emissions. For instance, Holtz-Eakin and Selden (1995) estimates suggest a diminishing marginal propensity to emit carbon dioxide as GDP per capita rises. This result is consistent with the 'inverted-U' shape for the relationship between per capita GDP and several air pollutants found in Grossman and Krueger (1991) and Selden and Song (1994). Despite this feature, Holtz-Eakin and Selden conclude that emissions will keep going with growth because output and population will expand faster in lower-income nations (with their high marginal propensity to emit) than higher ones (which eventually pass the turning point). Put in other words, economic growth in itself does not offer a solution to environmental problems as long as reductions in CO 2 emissions will not occur during the normal course of development. And that finding should raise some concerns about the distributional consequences of policies to reduce emissions.

As a result of that (no homogeneous results in the EKC literature) the validity of this hypothesis has been questioned in some surveys (e.g. Stern 1998, 2004). Most of the criticisms are related to the use of non-appropriated techniques and the presence of omitted variables bias. In fact, Perman and Stern (2003) state that when diagnostic statistics and specification tests are taken into account and the proper techniques are used, the results indicate that the EKC does not exist. Besides note that an EKC for CO2 emissions per capita does not imply an EKC for CO2 emissions within the wide range of data observations as showed in York et al. (2003). Consequently, Borghesi and Vercelli (2003) considered that the studies based on local emissions present acceptable results, whereas those concerning global emissions do not offer the expected outcomes, and therefore the EKC hypothesis cannot be generally accepted. Thus as long as the evidence is rather diverse for panel data and the studies on single countries are rather rare, additional research is called for.

An in deep scrutiny of model specification in the literature shows us that there are a considerable number of studies that consider only GDP and population growth, to explain CO 2 emission growth. Although that, other studies have explored other underlying factors, such as international trade, globalisation, the component effects of income (scale, composition, and demand effects), the level of environmentally damaging technology, energy intensity, structure of the economy, primary energy use in final energy consumption, the share of fossil fuels and the carbon intensity of fossil fuel combustion. Equally important, though even less explored, is the link between government action, measured as either policy variables or government regime type, and environmental quality. Despite the important connection between government action and the provision of public goods such as environmental quality, the effect of government regime-type on environmental quality has been under studied in the EKC debate. Other variables, for instance, regulations and taxes influencing fossil fuel consumption, patterns of urbanization and sub-urbanization, etc., are not considered or


dismissed by most researches. Of course, there are also exogenous, country-specific factors that will impact on emissions like climate, geography, resource endowments, land area, etc. If these omitted variables are also correlated with per capita GDP, cross-section estimates of the equations will be biased and inconsistent.

But nearly all of the studies described above omit energy prices. The first study to specify energy prices in regression models that test for an EKC for carbon emission is Agras and Chapman (1999). Their results indicate that the energy price is an important explanatory variable. They suggest also that evidence for an EKC for carbon emission is weakened when energy prices and trade variables are included. The long-run price model shows that income is no longer the most relevant variable for environmental quality or energy demand but it is

still a significant variable. Furthermore, it causes other factors

to become insignificant that were previously important. The

trade variables are now insignificant while otherwise they

have been shown to have considerable explanatory value. They conclude that the problem with such a diverse results may be an over-identified model. Richmond and Kauffmann

(2006) arrived to similar results concluding that “evidence for

a turning point in the relationship between income and

carbon/energy use disappears when real light fuel oil prices are included in the model” and thus previous findings are based on spurious statistical relationship. As a result there is not clear and unambiguous evidence that income gains will reduce energy use at any level of income. In addition, Heil and Selden (2001) experiment with a method for incorporating oil prices into the model. They used Hanushek’s (1974) method to regress the estimated year effects from the emissions–GDP model on global energy prices. They found that the magnitude of this effect is small but they draw our attention to the fact that their oil price measure is only imperfectly correlated with domestic energy prices, due to the wide range of energy taxes, subsidies, and other distortions that many countries impose.

Finally, since last decade there is a growing literature dealing with the dynamic causal relationships between pollutant emissions, energy consumption and output. This literature examines the time series dynamics (i.e. through Granger causality test) between income and emissions in order to infer the direction of causality among variables. As a general conclusion it could be said that there is evidence of an inverted U-shape pattern associated with the EKC in Hsiao- Tien and Chung-Ming (2010), Apergis and Payne (2009), Ang (2007), Coondoo and Dinda (2002), Dinda and Coondoo (2006), Akbostanci et al. (2009), Niu et al. (2011), and Lee and Lee (2009). However Vishal (2011) does not provide such evidence of an EKC.

Just to close this survey of the literature, there is an alternative methodology for analyzing the driving forces behind CO 2 emissions growth by performing some kind of factorial decomposition breakdown. The literature has follow two main approaches: (i) modified input-output modelling for environmental analysis and (ii) Index decomposition

methodologies such as the Divisia and Laspeyres index. These techniques require detailed sectoral data and do not allow for stochasticity. Illustrations for the former could be found in Chung (1998), and for the latter see for instance Cozzi and Di Giulio (1999), Shipper et al. (1997), Hamilton and Turton (2002), Greening et al. (1998), Liaskas et al. (2000) and Schipper et al. (2000), Bataille et al. (2007), Wang et al. (2005), Metcalf (2008) 2 . Some general conclusions emerge from this literature: (i) the level of economic activity and structural change play an important role on the behavior of CO 2 , even more important than energy intensity, (ii) the

energy and transport sectors are the main causes for the increase in CO 2 emissions, (iii) the energy intensity effect was

fully exploited normally by the industrial sector, and finally

(iv) fuel substitution does usually not contribute much to lowering emissions, but can play a significant role in single cases. However these conclusions may be subject to the short of countries being analysed (developed versus developing countries). Another approach used for look at the relationship between income and pollutants is the efficient frontier methods (frontier models) which have not been surveyed for this paper.


As Marrero (2010) shows not just economic development is important for explaining CO 2 discharge on the environment

but also the energy mix. Nevertheless, this energy mix is not a primary unit for policy-makers decisions, in fact, the energy

mix is driven for the energy prices and the production


d it


= δd it 1 + β 1 y it + β 2 y it


+ β 3 e it + β 4 p it oil + β 5 p it coal + β 6 p it gas + β 7 o + u it

i = 1,


N ; t = 1,



We will assume that the fixed effect u it follows a one-way

error component model 3 ,

u it = μ i + υ it

where μ i IID (0, σ μ ) and υ i IID (0,σ υ ) , independent of each other and among themselves.



In this model, d it is CO 2 discharge on the environment per capita, and we incorporate also its lag in order to control for dynamics. Based on the Environmental Kuznetz Curve (EKC) we include the Gross Domestic Product per capita (y it ) and its square in order to control for the possible inverted U-shape of the curve. We also account for the aggregate energy use effect

2 Ang and Zhang (2000) provide a good methodological overview of the several studies that have used decomposition methodologies to track the sources of emissions growth. For a good review of the literature see Löfgren & Muller (2010). 3 Within this class of models, the fixed effects specification is a common choice for macroeconomic analysis and it is believed to be more appropriate than a random effects model for two reasons. First, if the individual effect represents omitted variables, it is likely that these country-specific characteristics are correlated with the other regressors. Second, a typical macro panel is not likely to be a random sample from a larger universe of countries.


(Marrero, 2010) including the total primary energy consumption per capita e it . Our contribution to the model would be to incorporate the prices of primary energies (p it ): oil products, coal and gas instead of the shares energy consumption. Since it is not possible to calculate a price for renewable energy we include production of renewable energy showing the country capacity for using this kind of energy 4 .

Our sample is a balanced panel of 15 European countries 5 and 390 observations for the period 1980 to 2004. The source for this data sample is the “Energy Statistics of OECD countries, 2007 edition” and the “Energy Prices & Taxes 2nd Quarter 2007” both published by International Energy Agency (IEA) and Organisation for Economic Co-operation and Development (OECD). Table 1 summaries the main descriptive statistic.

Table 1. Descriptive statistic of the data sample.



Std. Dev.













ln(GDPpc) 2















ln(E prices)





ln(Oil prices)





ln(Coal prices)





ln(Gas prices)











The inclusion of a lagged dependent variable in the model (1) renders the OLS estimator biased and inconsistent 6 . Since d it is a function of μ i , it immediately follows that d i,t-1 is also

a function of

μ i . Therefore, d i,t-1 is correlated with the error

term, even if the υ it are not serially correlated. For the fixed effects estimator, the within transformation wipes out the μ i ,

but ( d i , t 1 d i, t 1 ) where d i , t 1 =

with (υ it υ i ) even if υ it are not serially correlated 7 .


t = 2

d i, t 1

(T 1) will still be correlated

, t − 1 ( T − 1 ) will still be correlated 4 Details about

4 Details about the variables definitions and the database are showed in the Appendix. 5 Countries included are Austria, Belgium, Check Republic, Denmark, Finland, France, Hungary, Italy, Japan, Poland, Slovak Republic, Switzerland, Turkey, United Kingdom, United States.

6 See Sevestre and Trognon (1985) for the magnitude of this asymptotic bias in dynamic error component

7 This is because is correlated with by construction (the latter average contains which is obviously correlated with ). In fact, the within estimator will be biased by O(1/T) and its consistency will depend upon T being large (see Nickell 1981). Nevertheless, only if T → ∞ the within estimator of δ and β will be consistent for the dynamic error component model. Judson and Owen (1999) perform some Monte Carlo experiments for N = 20 or 100 and T = 5, 10, 20 and 30. Biases increase with δ and decreases with T. But even for

An alternative transformation that wipes out the individual effects is the first difference transformation. Anderson and Hsiao (1981) suggested first differencing the model to get rid

of the and then using Δd i , t 2 =

) . These instruments will not

be correlated with Δυ it =υ i, t υ i , t1 , as long as the υ it themselves are not correlated. This instrumental variables estimation method leads to consistent but not necessarily efficient estimates because it does not make use of all the available moment conditions (Ahn and Schmidt (1995)), and it does not take into account the differenced structure on the residual disturbances ( Δυ it ). Arellano and Bond (1991) propose a generalized method of moments (GMM) procedure that is more efficient than the Anderson and Hsiao (1982) estimator. Arellano and Bond (1991) argue that additional instruments can be obtained in a dynamic panel data model if one utilizes the orthogonality conditions that exist between lagged values of d it and the disturbances υ it .

instrument for Δd i , t 1 =


d i, t 2

d i, t 3

) or simply d i,t-2 as an

( d i , t 1 d i , t 2

Later on, Blundell et al. (2001), reviewing developments to improve on the relatively poor performance of the standard one-step difference GMM estimator for highly autoregressive panel series, provided Monte Carlo simulation comparison between one-step difference and the estimator proposed in Blundell and Bond (1998), denoted system GMM, that relies on relatively mild restrictions on the initial condition process, and showed that system GMM has substantial asymptotic efficiency gains, as it not only greatly improves the precision but also greatly reduces the finite sample bias. Soto (2007) analysed through Monte Carlo simulations the properties of various GMM and other estimators when the number of individuals is small, as typical in country studies. He found that the system GMM estimator has a lower bias and higher efficiency than all the other estimators analysed, including the standard one-step difference GMM estimators.

We have applied several tests and we found that a GHG emission has a unit root 8 . Under these conditions, system

GMM is not in principle applicable. Nevertheless, difference

GMM is an even poorer choice, as explained in Bond et al. (2001). These authors also argue that including time dummies or transforming variables into deviation from time means should be enough to satisfy the stationary conditions, since any arbitrary pattern in the time means is consistent with a constant mean of the transformed series for each country 9 . Moreover, the GMM framework flexibly accommodates multiple endogenous variables.

T = 30, biases could be as much as 20% of the true value of the coefficients of interest

8 8 Fisher Test for panel unit root using an augmented Dickey-Fuller test (2 lags) we are not able to reject that GHG per capita has a unit root at a level of


)= 0 does not imply that the country-

specific effects play no role in GHG emissions. The assumption means that there is no correlation between the GHG emissions and the country-specific effect in the absence of conditioning on other variables.

9 Note that the assumption E

( μ i Δd i 2


As a consequence of all this, our best available choice is the system-GMM estimator by Blundell and Bond (1998). Although this is a two-step estimator, under homoscedasticity of the ν it disturbances, the particular structure of the first- difference model implies that an asymptotically equivalent GMM estimator can be obtained in one step. Simulation studies have suggested very modest efficiency gains from using the two-step version, even in the presence of considerable heteroscedasticity. Besides, the dependence of the two-step weight matrix on estimated parameters makes the usual asymptotic distribution approximations less reliable for the two-step estimator. Consequently, the best available estimator for our equation is the system-GMM estimator by Arellano and Bond (1998) and we use the one-step estimator including Finally, we also include country dummies to account for the particular factors inherent to each country not considered in the model. We also incorporated specific-year dummies accounting for economic changes affecting all countries. And country-specific trend accounting for changes in the behaviour over time, for example efficiency over time.

The validity of the assumptions used to obtain the moment conditions of System GMM can be assessed using a Sargan overidentification test under the null that these moment conditions are valid. Nevertheless, too many instruments generated system GMM can lead to a problem of overfitting, reducing the power of the Sargan test (Roodman 2009a, 2009b). Instrument can overfit endogenous variables, failing to expunge their endogenous components and biasing coefficients estimates. There are two main techniques to limit the number of instruments: to use only certain lags instead of all available lags or to combine instruments through addition into smaller sets. We will apply both techniques in order to assess the robustness of our results.


As we have explained in the previous section, the suitable estimator for our model is Blundell and Bond's (1998) system- GMM estimator. We have applied some robustness test for all specifications. We have examined the behaviour of the coefficients and the overidentification test when we reduce the number of included instruments. For all specifications we get the same results independent of the number of the instruments being used. Moreover, all estimations have been checked using estimates based on OLS and within transformation procedures in order to appraise the robustness of the results. Table 2 shows the results for the CO 2 discharge on the environment. Additionally, we report the number of observations and instruments being used, and the p-values of the Arellano-Bond AR(1), Arellano-Bond AR(2) 10 and Sargan tests.

10 Within the Arellano and Bond (1991) procedure, AR(1) residuals are not detrimental to estimation, while AR(2) residuals are. Another further feature of our results is the importance of allowing for an AR(1) component in equation function error term. We need to allow for this serial correlation in

The first specification (columns 1 in Table 2) shows the basic approach to validate the Emissions Kuznets Curve (EKC) hypothesis in a dynamic framework according to the survey in section II. Neither the GDP per capita nor its square appears to be significant, i.e. we do not find evidence for the EKC. We also attempt to account for the dynamics in the adjustment of the energy consumption per capita and the GDP per capita (columns 2 and 3 in Table 2). Only for the last one we could accept the EKC hypothesis.

As we said before, we test for different dynamics adjustments for per capita CO 2 according to different specifications for energy consumption, GDP, energy prices and renewables. For per capita GDP neither the current values nor the lag appear to be significant in most of the specifications. Thus we suspect that those two cases where we did found a significant coefficient for GDP should be the result of spurious statistical relationship as reported in the survey.

On the other hand, we found that per capita energy consumption is always an important element explaining CO 2 discharged on the environment. Both the current and the lag values appear to be significant but with opposite sign. For this reason we attempt in equation nº9 to identify which effect dominates by including the increase (difference) experienced by this variable. As a result, the increase of per capita energy consumption has a positive and significant effect on CO 2 . Therefore the CO 2 dynamics are better explain by changes in per capita energy consumption instead of its level counterparts (current and lagged) which now turn to be not significant. Nevertheless the influence of this variable on CO 2 values is very tinny attending to the range of values for both in our sample data base.

To the contrary of Marrero (2010) we do not include the shares of final energy consumption to account for final energy composition effect. We consider that the shares of the sectors consumption are not a good proxy for changes in technology efficiency between sectors. In fact this shares could account for changes in sector composition due to other supply-demand reasons. Instead we include the country-trend dummies to account for changes such as technological ones during the period 1979-2004 for each country.

It is clear for any reader that the energy mix should be an important factor to determine the emission levels. Nevertheless, we consider that using the shares of primary energies into the economy is not a proper approach. Instead, it may be more important from policy perspective to account for the prices that drive this energy mix. First, we include the average price of the oil products (equation 3 and 4) as a

order to obtain any valid lagged internal instruments in first-differenced or equations in levels. The estimations for our model do not show autocorrelation of second order and Sargan test performed well, too.


reference price. This seems a reasonable assumption as oils products represent the main energy source in our economies and many other like natural gas are usually correlated to it.

The results show that oil prices appear to be significant in all specifications and present a negative sign, i.e. an increase in the oil prices lead to a decrease in the emissions. Nevertheless, using just the oil prices it is not possible to shed light into the substitution effect of the different energies, so we include the prices for coal and gas too. Results show that gas and coal prices appear to be significant if we do not account for the adjustments in the total energy consumption (lagged and in differences). Moreover, gas and coal prices show a positive sign which may be subject to alternative interpretations, i.e. (i) there is an unexpected positive price elasticity of emissions or (ii) they show a substitution effect respect to the oil products prices. As our preferred specification is the last column (nº9 in Table 2) again we are confident that we found a spurious statistical relationship for both prices and therefore they do not deserve our attention.

Finally the production of renewable energy should be important to reduce the emission intensity of the economies (unfortunately it is not possible to calculate a price for the renewable). This variable seems to be negative correlated with CO 2 emissions and significant in all specification, i.e. the possibility of using renewable energy is an important tool to decrease the CO 2 emissions.


The findings reported in this piece of research confirm the suspicion in the literature that the relationship among CO 2 emissions and GDP may be the result of spurious statistical correlations. Therefore that could be evidence against the EKC hypothesis.


Table 1: System-GMM estimates for the CO 2 discharge on the environment.






























‐0.047** 0.02








0.824*** 1.121***

0.659*** 1.394*** 0.650***

1.358*** 0.268









Ln(Oil prices)


‐0.006* ‐0.008*

‐0.016*** ‐0.010* ‐0.018*** ‐0.009


Ln(Coal prices)


0.019*** 0.007




Ln(Gas prices)

0.028*** 0.01






‐0.090*** ‐0.037* 0.974*** 0.288*** 0.820***

‐0.070*** ‐0.036*** ‐0.071*** ‐0.038*** ‐0.042***



0.458*** 0.823*** 0.458***

0.788*** 0.761***




5.597*** 1

4.452*** 1.266

























value AR(1)










p‐value AR(2)










p‐value Sargan










* p<.1; ** p<.05; *** p<.01

year‐specific dummies and country trends included



Variables definitions and calculations:

- CO 2 discharge on the environment: CO 2 sectoral approach (mt of CO 2 ).

- Gross domestic Product per capita (expressed in

thousands 2000 $ US using PPPs per person).

- Total primary energy consumption (it includes oil, coal, gas and renewable) (ktoe per person).

- Weighted average price of oil products (US$-using power

purchase parity/unit): It is calculated as a weighted average of industry and household prices (we use the final consumption as weights). Industry prices include representative heavy fuel oil, light fuel oil and automotive diesel but not fuels used for electricity generation. The household index includes representative gasoline and light fuel oil.

- Weighted average price of coal (US$-using power

purchase parity/unit): It is calculated as a weighted average of industry and household prices (we use the final consumption

as weights). For coal, the industry index includes representative steam coal and coking coal. The household index includes steam coal.

- Weighted average price of gas (US$-using power

purchase parity/unit): It is calculated as a weighted average of

industry and household prices (we use the final consumption as weights). - Production of renewable energy per capita (Ktoe/person). It includes nuclear, hydro, geo, solar and waste.


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