Compelling Evidence of an Environmental Kuznets Curve in the United Kingdom

Abstract

The objective of this paper is to investigate the relationship between per capita emissions ($\hbox {CO}_{2}$ and $\hbox {SO}_{2}$) and economic growth (per capita GDP) in the UK using a long span of data. This paper examines the existence of a non-linear relationship between emissions and economic growth using methods that do not restrict the relationship to be any particular shape. The methodology employs instrumental variables in the place of per capita GDP to deal with potential concerns about errors in variables and endogeneity. The empirical results provide strong support for the environmental Kuznets curve, with estimated turning points in 1966 and 1967 for $\hbox {CO}_{2}$ and $\hbox {SO}_{2}$ , respectively. These turning points correspond roughly with the introduction of the Clean Air Act in the UK as well as the reduction in the use of coal as an energy source; and together, they provide a snapshot of the forces driving the turning points. The paper continues by further investigating the temporal behavior of the inverted U-shaped relationship. The findings indicate that if emissions and per capita GDP deviate from their long-run relationship, emissions do the “heavy lifting” to restore the system to equilibrium. This result is intuitively pleasing because mitigation is directly affected by legislation as opposed to declining economic growth.