Role of Energy R&D in Shaping the Environmental Kuznets Curve Among OECD Countries

Abstract

The Environmental Kuznets Curve (EKC) model offers a framework for examining the relationship between economic growth and environmental degradation. This study aims to determine whether implementing energy regulations can influence environmental outcomes beyond what the EKC predicts. A detailed panel data model is used to analyze 25 OECD countries, focusing on the interplay between economic growth, environmental degradation, and the impact of energy research, development, and demonstration on environmental pollution. Utilizing an N-shaped cubic model of the EKC, this study investigates the progression of per capita greenhouse gas emissions. Unlike traditional analyses that primarily consider economic growth, this research incorporates public budgets dedicated to energy-oriented research, development, and demonstration. The regression results demonstrate that investments in energy innovations significantly reduce per capita greenhouse gas emissions levels and mitigate the adverse effects on environmental quality. The N-shaped EKC model suggests that environmental degradation initially increases with economic growth, reaches a peak, then decreases, but may rise again at higher levels of income. This study's findings confirm that beyond certain economic thresholds, continued growth can lead to further environmental harm unless mitigated by targeted interventions like energy research, development, and demonstration. By integrating these variables, the research provides a more nuanced understanding of how policy measures can alter the trajectory predicted by the EKC. Energy research, development, and demonstration plays a crucial role in this dynamic. Public investments in energy research and development are shown to be effective in reducing greenhouse gas emissions, thereby enhancing environmental quality. This underscores the importance of sustained and focused investment in innovative energy technologies as a critical component of environmental policy. By fostering advancements in renewable energy, energy efficiency, and low-carbon technologies, countries can achieve significant reductions in emissions. Additionally, the study introduces a methodological enhancement by interpreting the influence of inflection points on EKC behavior. Inflection points represent the stages where the direction of the relationship between economic growth and environmental degradation changes. Understanding these points is vital for policymakers to implement timely and effective interventions. For instance, identifying the initial peak where environmental degradation starts to decline can help in crafting policies that reinforce this positive trend. Conversely, recognizing a potential second rise in degradation at higher income levels can prompt preemptive measures to avoid further environmental damage.