Using the Environmental Kuznets Curve to evaluate energy policy: Some practical considerations

The Environmental Kuznets Curve (EKC) is a widely applied empirical model that is used to assess the effect of country's increased income on its emissions (such as CO2). Typical estimation is of a reduced form model relating per capita emissions to per capita GDP (and sometimes to energy consumption) with an eye toward determining whether a country's per capita emissions increase or decrease with per capita GDP. In this article, we consider a number of practical issues in estimating and using the EKC for energy policy analysis. Proper estimation procedures should be used if the empirical work is to provide valid estimates of the EKC's shape. In addition, policymakers should proceed with caution when crafting policy on the basis of reduced form estimates of the EKC because the reduced form model provides limited insight into the policy implications of the relationship between income, energy consumption and emissions.