Emissions trends and labour productivity dynamics

Indicators of delinking or decoupling, that is improvements of environmental/resource indicators with respect to economic indicators, are increasingly used to evaluate progress in the use of natural and environmental resources. Delinking trends for industrial materials and energy in advanced countries have been under scrutiny for decades. In the 90s, research on delinking was extended to air pollutants and greenhouse gases (GHGs, henceforth) emissions. ‘Stylised facts’ were proposed on the relationship between pollution and economic growth which came to be known as the Environmental Kuznets Curve (EKC, henceforth), which was based on general reasoning around relative or absolute delinking in income-environment dynamics relationships. The value of this mainly empirical analysis is manifold. First, its originality lies in the very rich NAMEA sector based economic-environmental merged dataset for 1990-2005 (29 branches), which is further merged with data on trade openness for the EU15 and extra-EU15 dimensions, and research and development (R&D) sector data. The quite long dynamics and the high sector heterogeneity of these data allow robust inference on various hypotheses related to the driving forces of delinking trends. In this analysis, we investigate CO2 and SOX. In addition to core evidence on the EKC shape, we test the following hypotheses: (a) whether services and industry have moved along different directions; (b) whether the increasing trends associated with trade openness among the EU15 and non-EU15 countries affect emissions dynamics, following the pollution haven debate (Cole 2003, 2004; Cole and Elliott 2002; Copeland and Taylor 2004); (c) whether pre-Kyoto and post-Kyoto dynamics show different empirical structures; (d) whether sector R&D plays a role in explaining emissions efficiency. As empirical reference models we use a standard EKC model that measures emissions in relation to employees as an indication of environmental technical efficiency, and a STIRPAT/IPAT model, which uses emissions as the dependent variable, and relaxes the assumptions about unitary elasticity with respect to labour (population), which enters as a driver. The policy relevance of this work lies in: (i) the temporal structural break in pre-Kyoto and post-Kyoto dynamics; and (ii) the macro sector (services, industry) level evidence it provides which could help to shape EU policies such as refinements to existing Emission Trading Scheme (ETS), or a new carbon tax for non-industry sectors or small businesses. The use of NAMEA accounting, which is a panel (that consists of a time series of cross-sections) of observations for air pollutants, value added, trade, R&D and employment matched for the same productive branches of the economy (Femia and Panfili 2005), is a novelty of our study, compared to other international studies on EKC. We use a disaggregation at 29 productive branches and four air polluting emissions. For brevity, we refer the reader to Marin and Mazzanti (2009) and Mazzanti and Zoboli (2005, 2009) for a conceptual discussion of IPAT and EKC frameworks.