Relationship between CO2 emissions and GDP functional form and decoupling

International Journal of Green Economics, 2017 Vol. 11 No. 2 p. 83-106.

The aim of this paper is to study the relationship between Emissions-GDP functional form and decoupling behaviour in developed and developing countries. With data for the period 1960-2012 for 27 European countries and 18 CELAC nations, this research employs a Box-Cox specification to capture the CO2 emissions-GDP connection, considering, at the same time, the time-series properties of both variables. We find that the Box-Cox functional form describes better the relationship between income and pollution in UE and CELAC countries, but there are differences regarding decoupling behaviour. Many European countries have increased economic activity while decreasing emissions, but that
behaviour is not observed among CELAC nations. Except when delinking between CO2 and GDP is strong, this mismatch between functional form and decoupling is explained because the type of decoupling depends on both the slope of the relationship between emissions and GDP and on the level of both indicators.