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Economic Freedom and the CO2 Kuznets Curve

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Abstract
Politicians and international organisations advocate for increased regulation and government control of industry in order to handle climate change and reduce overall greenhouse gas emissions. However, it remains an open question how economic freedom is associated with environmental damage and whether deregulation is harmful to the environment or incentivises the use of green technology. On one hand, more government control and regulation may force firms and individuals to reduce their emissions. On the other hand, more economic freedom is likely to enable innovation and the adoption of green technological development. In this paper, I therefore combine data on growth in greenhouse gas emissions and GDP per capita with the Fraser Institute’s Economic Freedom of the World indices in order to test if economic freedom affects emissions. I do so in the context of estimating a standard Environmental Kuznets Curve in which economic freedom can both reduce overall levels as well as shift the shape of the curve. The results suggest that economic freedom reduces greenhouse gas emissions but also shifts the top point of the Kuznets Curve to the left. Part of this effect may be due to the effect of economic freedom on the adoption of renewable energy.

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  • Bjørnskov, Christian, 2020. "Economic Freedom and the CO2 Kuznets Curve," Working Paper Series 1331, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1331
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    More about this item

    Keywords

    Economic freedom; Environmental performance; Greenhouse gases; Kuznets Curves;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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