On the environmental Kuznets curve with fossilfuel induced emission: Theory and some illustrative examples
Paper number: 14/06
Paper date: April 2014
Paper Category: Discussion Paper
We propose a model of fossil-fuel induced emission, which permits multiple emission-mitigation strategies. In a differentiable framework, we derive a set of necessary and suffcient conditions for an environmental Kuznets curve (EKC) in terms of the relative responses of the preference and technology-based shadow prices of emission to changes in the economic resource base when the emission policy is not allowed to adjust. Employing these conditions we construct examples of preference and technology combinations that result in an EKC in both static and dynamic frameworks. In these examples, optimal emission-mitigation strategies include employing a part of available resources for cleaning-up activities and inter-fuel substitution from dirtier to cleaner energy inputs. We show that the social optimum can be decentralised not only through standard emission policies such a Pigouvian tax, but also by a scheme that subsidises cleaning-up activities and taxes the usage of fossil fuels.
Keywords: Environmental Kuznets curve, marginal abatement cost, marginal willingness to pay, fossil fuels, inter-fuel substitution, abatement effort
JEL classification codes: Q56, Q58, H23, D62