An Environmental Kuznets Curve Analysis of U.S. State-Level Carbon Dioxide Emissions

Abstract

Most environmental Kuznets curve (EKC) theories do not apply to carbon dioxide (CO2 )—an unregulated, invisible, odorless gas with no direct human health effects. This analysis addresses the hypothesis that the income-CO2 relationship reflects changes in the composition of an economy as it develops and the associated role of trade in an emissions-intensive good (e.g., electricity). To test this hypothesis, I use a novel data set of 1960 to 1999 state-level CO2 emissions to estimate pretrade (production-based) CO2 EKCs and posttrade (consumption-based) CO2 EKCs. Based on the first EKC analysis of CO2 emissions in the United States, I find that consumption-based EKCs peak at significantly higher incomes than production-based EKCs, suggesting that emissions-intensive trade drives, at least in part, the income-emissions relationship. I have also investigated the robustness of the estimated income-CO2 relationship through a variety of specifications. Estimated EKCs appear to vary by state, and the estimated income-emissions relationships could be spurious for some states with nonstationary income and emissions data. Finally, I find that cold winters, warm summers, and historic coal endowments are positively associated with states’ CO2 emissions.