Does economic growth eat up environmental improvements? Electricity production and fossil fuel emission in OECD countries 1980-2014

Abstract

We analyze to what extent electricity production by non-fossil fuel replaces fossil fueled electricity production in 27 OECD-countries 1980–2014. Depending on model specification, the long run replacement coefficient is in the range of minus 0.4–1.0, which is considerably larger than found in other studies. This means that an increase in non-fossil fuel based electricity production by 10 kWh/capita replaces fossil fuel based production in the range 4–10 kWh/capita. Over all the estimated replacement is not sufficient to prevent economic growth from increasing fossil based electricity production, thus eating up environmental improvements. However, we identify two important exceptions to this. First, countries with a ‘low’ level of fossil based production have an Environmental Kuznets Curve (EKC) relationship when we allow for separate effects of the economic downturn after the Great Recession 2008–2009. Second, results for the EU countries indicate that the EU Emission Trading System, and possibly EU country specific policy instruments, have influenced the mix of electricity production in the intended direction.

Does economic growth eat up environmental improvements? Electricity production and fossil fuel emission in OECD countries 1980-2014