Industrial emissions: productivity, trade and innovation drivers. Evidence on delinking from the Italian NAMEA

This paper provides new empirical evidence on delinking / Environmental Kuznets Curves (EKC) for greenhouse gases and other air pollutant emissions in Italy. A panel dataset based on the Italian NAMEA (National Accounts Matrix including Environmental Accounts) for 1990-2005 is analyzed with a specific focus on industry, for which we may integrate the emission-income NAMEA matrix with data on trade openness and R&D expenditures. The highly disaggregated dataset provides a large heterogeneity and can help to overcome the shortcomings of the usual approach to EKC based on cross-country data. The empirical originality is relying on the very rich NAMEA sector based economic-environmental merged dataset over 1990-2005 merged with data on trade openness (1995-2004) for EU and extra EU dimensions, and finally R&D sector data (1991-2003). The quite long dynamics and the high sector heterogeneity allow robust inference on various hypotheses related to the ‘driving forces’ of delinking trends. We use in this paper CO2, SOx, NOx and PM10 as object of investigation. We mainly test, in addition to the core evidence on the EKC shape of CO2, the following hypotheses: (a) whether the increasing trends associated to trade openness with EU and non EU countries affect emission dynamics, following the ‘pollution haven’ debate; (b) whether pre Kyoto and post Kyoto dynamics show different empirical structures; (c) whether sector R&D plays a role in explaining emission efficiency. We use as empirical models of reference both a standard EKC model witnessing emissions on employees as measure of environmental technical efficiency, and a STIRPAT/IPAT model, which shows as dependant variable emissions, and relaxes the assumption of unitary elasticity with respect to labour (population), which enters as a driver. The policy relevance of the work relies (1) around the temporal structural break on pre-Kyoto and post Kyoto dynamics and (2) the possibility of investigating inside the branch dinamics that could help to shape EU policies such as refinements to existing Emission Trading Scheme (ETS), or a new carbon tax for specific sectors. Our results show that looking at sector evidence, both decupling and then eventually re-coupling trends could emerge along the path of economic development. The analysis of how stagnation periods affect environmental performances is also of interest. Specifically, results are summarised as follows. CO2 still seems to be associated to only relative delinking, with some signs of even re-coupling threats. In addition, it seems that in the post Kyoto phase CO2 emissions have even increased, with a significant structural break, and to some extent counter intuitively given that Italy has suffered a stagnation around 2002-2005. Shifts towards coal power and decrease in environmental technology dynamics may be two explanations. Instead, all other emissions show 1997 as a turning point towards lower structural emissions. Counter intuitively, but this may be dye to lower marginal costs of abatement and impure public good reasoning, non GHG externalities have benefited from Kyoto more than CO2. Trade expansion validates the pollution haven in some cases, but also show negative signs when EU trade only is considered: this may due to technology spillovers and positive ‘race to the top’, not to the bottom, regarding EU trade partners (Italy and Germany as main exporters and also trade partner in the EU). Finally, R&D show weak correlation to emissions efficiency, apart from SOx trends. This may be due to some endogeneity (R&D explains value added in a co-evolutionary way) and confirms the need of increasing research and efforts in producing specific data on ‘environmental innovations’.