The environmental Kuznets curve by considering asymmetric oil price shocks: evidence from the top two

Abstract

This study is the first attempt to investigate the validity of the environmental Kuznets curve (EKC) hypothesis by considering the asymmetric oil price effects on the CO₂ emission in the USA and China. The oil prices were incorporated as an indicator (proxy) of energy consumption in order to avoid potential endogeneity problems and allow exploring the asymmetric effects of the energy fluctuation on the CO₂ release. The nonlinear autoregressive distributed lag (NARDL)–bound testing approach to cointegration of Shin et al. (2014) in the presence of structural break is used to identify both short-run and long-run dynamic relationships between real oil prices, per capita GDP, and per capita CO₂ emissions over the period 1976–2013. The results indicate that the inverted U-shaped EKC hypothesis is not supported in the short and long terms in both countries. Asymmetric findings suggest that positive and negative fluctuations in crude oil prices affect CO₂ emissions differently in the USA and China. Unlike China, rising energy prices in the USA could be a contributing factor in the fight against pollution. More taxation of fossil energy and renewable energy subsidies are recommended for the American economy. However, the growth priority seems to outweigh the environmental issue for the Chinese economy.

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