The Environmental Kuznets Curve Reconsidered from the Perspective of Heterogeneity: Insights for Climate Change and Energy Policy

Designing an efficient global climate policy turns out to be a difficult yet crucial task since there are noteworthy cross-country differences in energy and carbon intensities. In this paper, the environmental Kuznets curve (EKC) hypothesis is tested for carbon dioxide ( 2 CO ) emissions and the iterative Bayesian shrinkage procedure is employed to handle the crosscountry differences. The results suggest that: first, the EKC hypothesis is rejected for 49 out of the 51 countries considered when the heterogeneity in countries' energy efficiencies and cross-country differences in the 2 CO emissions trajectories are accounted for; second, a classification of the results, with respect to the development levels of the countries concerned, reveals that the emergence of an overall inverted U-shape curve is due to the fact that in the high-income countries, increase in gross domestic product (GDP) decreases emissions, while in the low-income countries emissions and GDP are positively correlated.