Environmental implications of increasing affluence

Knowledge of the carbon emissions elasticities of income and population is important both for climate policy/negotiations and for generating projections of carbon emissions. However, previous estimations of these elasticities using the well-known STIRPAT framework have produced such wide-ranging estimates that they add little insight. Among the possible reasons for such disparate results are: (i) the different datasets analyzed and, in particular, whether elasticities were allowed to differ according to development level; (ii) the additional independent variables besides population and income that were considered; and (iii) the various methods used—specifically, the data’s time dimension and whether/how the stationarity properties of the data were considered/addressed. This paper estimates a model that addresses the above issues, as well as the issue of cross-section dependence. Among the findings are that the carbon emissions elasticity of income is highly robust; that elasticity for OECD countries is less than one, and likely less than the non-OECD country income elasticity (which is not significantly different from one). By contrast, the carbon emissions elasticity of population is not robust; however, that elasticity is likely not statistically significantly different from one (for either OECD or non-OECD countries).