Explaining the environmental Kuznets curve: structural change and international agreements in reducing sulphur emissions

Abstract

Environmental Kuznets curves have been estimated using a simple reduced-form model that gives no information on the mechanisms underlying the estimated inverted U-shaped relationship between some pollutants and income. Various intuitive appealing explanations for the observed patterns have been offered, such as structural changes and environmental policy, but these have rarely been empirically investigated. Expanding the reduced-form model with explanatory variables may introduce serious multicollinearity problems, a reason why decomposition analysis is a preferable alternative for investigating the origins of change in emissions. Applying decomposition analysis fails to find evidence for structural changes as an important determinant of the impressive reductions in SO₂ emissions of developed economies during the 1980s. Environmental policy, fostered by international agreements, gives a better explanation why pollution curbs downward at high income levels. Besides the level of income, the present state of the environment seems an important, but often neglected, variable that explains the ambition of environmental policy.