The effect of environmental policies on CO2 emissions - using the environmental policy stringency index

Abstract

The carbon concentration in the air has increased by 50 percent since pre-industrial times and continues to increase every year. Climate change is, therefore, a significant challenge today. The purpose of this paper is to study how the stringency of the environmental policies affect carbon dioxide emissions, and what factors play the most important part in influencing different countries’ carbon emissions trajectory. Built on the environmental policy stringency index constructed by OECD, this paper applies a panel data model with fixed effects to a sample with 33 countries between 1990 and 2014. The results show that higher stringency of environmental policies does not have a significant impact on carbon dioxide emissions, while fossil fuel consumption and gasoline price influence carbon dioxide emissions the most. The results imply that lowering fossil fuel consumption by increasing gasoline prices could be a solution in an attempt to reduce carbon dioxide emissions.