Growth, emissions, and climate finance nexus for sustainable development: Revisiting the environmental Kuznets curve

by Prof. Hannah Jun
Department of International Studies
PURE Research Profile
hannahjun@ewha.ac.kr

Prof. Hannah Jun’s article, “Growth, emissions, and climate finance nexus for sustainable development: Revisiting the environmental Kuznets curve,” was recently published in Sustainable Development (2021 Journal Impact Factor = 8.562, JIF Rank = 1/42 in Development Studies). This study extends the environmental Kuznets curve (EKC) literature on the growth-pollution nexus in relation to the global climate crisis, its unequal effects on developing countries, and effectiveness of international support.

The article begins with the observation that climate change is increasingly seen as a risk to sustainable development. Although developing countries have emitted the least greenhouse gases, they are the most disadvantaged when it comes to the negative aftermath. From the perspective of climate justice, there is a need for greater support for developing countries, particularly as there is still a wide gap between investment needs and actual investment.

The relationship between growth and the environment has been explored since the 1990s. Specifically, the EKC literature has attempted to answer whether growth increases pollution during early stages of development and then decreases environmental harm in the latter stages. While many important studies have examined the EKC hypothesis utilizing a variety of datasets and econometric approaches, few have considered development implications in light of the climate change discourse.

To fill this gap, this article revisits the EKC hypothesis by paying specific attention to the developing country context. It utilizes comprehensive panel data spanning 141 countries between 1990 and 2015, dictated by data availability. This includes an analysis of national income level and geographic location. In doing so, the original contributions of this article are threefold. The paper’s analysis and findings contribute to: (1) extending EKC literature by recontextualizing the EKC hypothesis for developing countries in the era of climate change; (2) combining EKC studies with climate finance effectiveness literature by integrating the climate change mitigation aid variable to understand its effects in developing countries; and (3) examining subpanels to show the distinction between developed and developing countries and the differences by national income and regional groups.

Empirical results suggest that the EKC hypothesis is generally valid in quadratic specification. However, if the concerned dataset is clustered by national income level or regional classification, the inverted U curve is not observed further, with a few exceptions. For the cubic specification, the EKC hypothesis with an N-shaped relationship is mostly not supported. Therefore, it is difficult to agree with the EKC hypothesis’ core argument that economic growth will naturally lead to environmental improvement. Among control variables, renewable energy consumption was statistically significant in most cases with a diminishing impact on CO2 emissions. Consistent with previous research, this supports the validity of current policies and increasing trends on climate mitigation, especially encouraging renewable energy use. Other control variables were not as significant as renewable energy consumption, but when they were significant, population density had a negative effect to emissions and urban population was correlated with an increase of pollution in general.

Key findings in this study might help suggest several courses of action against climate change, specifically mitigation measures. First, policies for climate change mitigation may need to embrace diverse aspects rather than have a narrow focus on economic growth. Economic development has been the top priority to most governments, and in line with this preference, the EKC with an inverted U shape has argued that continuous economic growth will ultimately lead to environmental improvement. However, EKC was not robust enough with the concerned sample, and some control variables (e.g., renewable energy consumption) were more significant than GDP levels. In addition, variables that had a prominent impact on emissions varied by income and regions.

Second, from the empirical tests, renewable energy consumption was found to be an effective means of reducing CO2 emissions. This implied that the trend of converting from conventional to renewable energy should be continued and accelerated. In line with previous studies, this analysis reaffirmed that renewable energy had a significant and negative effect on emissions. However, it should be kept in mind that the green premium of renewable energy might prevent developing countries or vulnerable groups from taking advantage of it. In the process of developing policies related to renewable energy, the concept of just transition should be reflected. In addition, as noted in some existing literature, enabling an environment for renewable energy investment is critical. This suggests that attention should continue to be paid to creating a favorable environment so that finance can go to where it is needed the most, or where it can generate the best outcomes.

* Related Article
Songhee Han, Hannah Jun, Growth, emissions, and climate finance nexus for sustainable development: Revisiting the environmental Kuznets curve, Sustainable Development, Volume 31, Issue 1, pp. 510-527, February 2023