Sectoral composition of GDP and greenhouse gas emissions: an empirical analysis in EU27

Understanding the relationship between economic growth and GHG emissions is crucial for achieving sustainable development and the Paris Agreement decarbonization goals. The objective of this paper is to analyse the long-term relationship between sectoral Gross Domestic Product (GDP) and greenhouse gas (GHG) emissions in the EU27 under the framework of the Environmental Kuznets Curve (EKC) theory. Previous research has yielded inconclusive results and presented various drawbacks, such as the omission of sectoral economic growth, poor data quality, and the use of methods that did not enable hypothesis testing. In contrast, this research applies the Autoregressive Distributed Lag (ARDL) method to assess the EKC in the long-term for the industrial, service, and agriculture components of GDP for EU27 countries from 1990 to 2018 using audited data from the United Nations Framework Convention on Climate Change. Despite a wide body of literature, this is the first research to investigate the EKC's nature in sectoral GDP in the EU-27. The EKC theory has been confirmed statistically in only five countries. Nevertheless, the results imply that economic growth has a lowering impact on the environment in more than half of the EU-27, as the EKC theorizes. A high impact on GHG emissions is observed in the service sector of those countries that combined a high share of services in the national economy with weak energy efficiency performance in the transport and building sectors. Likewise, countries with major employment in carbon-intensive industry branches tend to show a long-term impact on GHG emissions.