Income and time related effects in EKC

This paper documents the structural differences between climate change leading `actors' as Northern EU countries, and `lagging actors' - southern EU countries and the `Umbrella group' - with regard to their long run carbon-income relationships. We show that such categorization gives relevant policy and methodological insights. We investigate the issue of cross-country heterogeneity and the heterogeneity biases associated to standard panel data estimates but also disentangle time related and income effects. Parametric and semi parametric panel models allowing for time invariant unobserved heterogeneity robustly show that the groups of countries that were in the `Kyoto arena' less in favour of stringent climate policy, have yet to experience a turning point. Northern EU instead shows bell shapes. The key result is however obtained by estimating a semi-parametric random growth model. Country specific time related factors - that may represent latent innovation and policy features of countries - have been relatively more relevant than income effects in explaining the occurrence of such Kuznets curves. Overall, the countries differ more on their carbon-time relation than on the carbon-income relation which is in almost all cases monotonic positive. Just a few Nordic countries show a bell curve in both income and time related factors.