Kuznets, Kaya, and Shapley: The Economic and Energetic Determinants of Carbon Emissions and the Implications for Development and Environmental Policy

Abstract

With global climate change becoming an increasingly pressing concern, the relationship between economic growth and environmental outcomes is as important as ever to understand, particularly in designing policies for low- and middle-income countries that incorporate both environmental and development objectives. The Environmental Kuznets Curve (EKC) shows the relationship between income and environmental outcomes. In this paper we examine the existence and shape of the EKC for 132 countries for the period 2000-2010. We add to the EKC literature by using the technique of Shapley Decomposition to assess Kaya identity factors for these 132 countries, grouped into income quartiles. The Kaya Identity relates emissions to income, energy intensity, and emissions intensity. Shapley Decomposition (SD) allows us to understand the importance of each of these factors. By applying the SD technique to the Kaya Identity for countries grouped by income level, we can assess the importance of income on emissions for countries at various stages of development, and we confirm the presence of a global EKC. For lower income countries, rising income is the most important determinant of emissions; but at higher income levels economic growth is offset by improvements in energy efficiency and decarbonization, thus explaining the inverted-U-shaped EKC.