The impact of technological progress on emissions levels : evidence and lessons from different income-group countries

Abstract

Global warming poses a serious threat to our ecosystem and our future. In this regard, reducing the use of fossil fuels by limiting energy consumption or improving energy efficiency is considered a critical path to combat climate change and environmental degradation. Among the main factors for reducing carbon emissions, technological progress's environmental impact has recently received considerable attention. Many scientists and political and economic leaders believe that technological progress will play a vital role in the low carbon path for both developed and developing economies. However, it would be interesting to determine whether technological progress has reduced carbon emissions over the past decades. Hence the purpose of this thesis. This thesis aimed to investigate the impact of technological progress on CO2 emissions. To do so, the specific research questions of the thesis were: What is the impact of aggregate technological progress on CO2 emissions? What is the effect of green technology on CO2 emissions? How are sectoral CO2 emissions (emissions from five energy sectors: Power, manufacture, transportation, petrol, and building sectors) affected by aggregate and green technological progress? In addition to these three specific questions, the thesis investigates how the relationship changes depending on countries’ development stages. These three research questions were addressed through three chapters (chapters 3, 4, and 5) around which the thesis is structured. This thesis was carried out on a panel of 60 countries divided into four income groups. Thus, we had 15 high-income countries, 15 upper-middle-income countries, 15 lower-middle-income countries, and 15 lower-income countries. The 15 countries chosen per income group are the largest CO2 emitters in their respective income groups. The study period ran from 1989 to 2018. The empirical analysis starts from chapter 3. In this chapter, various indicators of technological progress are used to evaluate their effect on CO2 emissions using the fixed effect and the Bruno LSDVC methodology. The full sample dataset analysis reveals mixed results. ICT expansion and science and technology publications reduce CO2 emissions. Patent applications and R&D expenditure did not significantly impact carbon emissions. TFP increases CO2 emissions in the full sample, suggesting that, in general, taking all its different aspects together, technological progress would increase carbon emissions. Subsample analysis revealed that ICT development decreases CO2 emissions in all income group countries. However, science and technology publication is negatively related to CO2 emissions only in high and upper-middle-income countries. The fourth chapter examined the interaction between green technology and CO2 emissions using the same estimation methodology employed in chapter 3. The thesis investigated if countries could reduce CO2 emissions through renewable energy consumption and climate-related innovations. Results reveal that renewable energy consumption significantly reduces CO2 emissions in the full sample and all subsamples. However, climate-related innovations represented by environmental-related patents significantly lower CO2 emissions only in very high-income countries. The fifth chapter investigated how aggregate and green technological progress affect CO2 emissions in five important energy sectors. The thesis developed an aggregate technological index using various technological progress measurements. Then, the thesis evaluates the effects of the composite indicator created on carbon emissions from the power, manufacture, transport, petrol, and building sector, using the Generalized Method of Moments (GMM) and Feasible Generalized Least Square (FGLS) methodology. The full sample analysis results show that, on the one hand, the composite indicator increases carbon emissions in all sectors except the building sector. On the other hand, renewable energy significantly lowers emissions from all sectors, except the petrol sector. Results from subsamples indicate that, generally, the composite indicator of aggregate technology is positively associated with carbon emissions across sectors; however, it is negatively related to carbon emissions from the manufacturing and building sector in high-income countries. The thesis further demonstrated that technological progress induced by the private sector plays a significant role in reducing CO2 emissions in these two sectors. This thesis allowed us to draw important lessons and recommendations for policymakers and various stakeholders to understand better the relationship between different aspects of technological progress and CO2 emissions and use technological progress as an essential tool to fight climate change.