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An earlier version of this paper was presented at the 2019 16th European Workshop on Efficiency and Productivity Analysis in London, UK and the 2022 8th International Symposium on Environment and Energy finance Issues, Paris France, and we are grateful to participants for their comments and suggestions. We would also like to thank two anonymous reviewers for their extremely helpful comments that helped to significantly improve the paper. Nevertheless, the views expressed in this paper are those of the authors alone and do not necessarily represent the views of their affiliated institutions and we are, of course, responsible for all errors and omissions. Copyright © 2023 The Authors. The standard approach to the Environmental Kuznets Curve (EKC) holds that as a country develops and GDP per capita grows environmental degradation initially increases but eventually it reaches a turning point where environmental degradation begins to decline. Environmental degradation takes many forms, one of them being emissions of harmful gases. According to the EKC concept, a country can reduce emissions by ‘growing’. The standard approach implicitly assumes that a country emits as little as possible for its economic development, whereas in reality, a country might emit above the best attainable level of emissions. Therefore, emissions could be reduced before and after the turning point by becoming more environmentally efficient – i.e., ‘improving’ the emissions level. This article proposes a Stochastic Environmental Kuznets Frontier (SEKF) which is estimated for CO2 emissions for OECD countries and used to benchmark each country before and after the turning point differently, thus, indicating how a country could ‘grow’ and/or ‘improve’ to reduce its CO2 emissions. Additionally, we analyse the role of the stringency of environmental policies in reducing a country's carbon inefficiency measured by the distance from the benchmark EKC and find widespread carbon inefficiencies that could be reduced by more stringent market-based environmental policies. This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. |
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