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Energy Prices and Turning Points: The Relationship between Income and Energy Use/Carbon Emissions

Abstract:
Models used to test whether an environmental Kuznets curve (EKC) can be used to describe the relationship between GDP and energy use and/or carbon emissions may be biased by the omission of energy prices. Here we include real energy prices and fuel shares in models that describe energy use and carbon emissions. We test if these models show a turning point in OECD countries. Results indicate that including energy prices eliminates statistical support for a turning point and suggest that the relationship between income and both energy use and carbon emissions is represented most accurately by diminishing returns. These results imply that economic growth per se will not reduce energy use or emissions that cause global climate change.

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Energy Specializations: Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation; Energy and the Economy – Energy as a Productive Input; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance; Energy and the Economy – Energy Shocks and Business Cycles

JEL Codes:
Q54 - Climate; Natural Disasters and Their Management; Global Warming
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
O13 - Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Q34 - Natural Resources and Domestic and International Conflicts
F44 - International Business Cycles

Keywords: Climate change, CO2 emissions, energy prices, kuznets curve, environmental policy, panel data

DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No4-7


Published in Volume 27, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.