With global attentions over the impact of green house gases(GHGs) on sustainable development and climate change, defining underlying factors of changes in carbon dioxide(CO2) emission has largely emerged as an important research area on detailed knowledge regarding potential means for mitigation and the effectiveness of environmental policies.
This paper tried to present an alternative decomposition technique to identify the relative importance of factors associated with changes in CO2 emission. By using Shephard output distance function in the context of joint production technology method, this paper decomposed changes in CO2 emission into 6 indices: scale effect, composition effect, efficiency change, technical change, non-fossil fuel energy change, and fossil fuel energy change.
One of the key features of the proposed approach is to separate the data for energy input variables into consumptions of fossil and non-fossil fuel, which figure out the impact of energy resource composition on the change in CO2 emission. In addition, to capture the transformation effect of industrial composition, this paper also divided the data for desirable output variables into two GDPs according to clean and pollution intensive industries repectively.
For the empirical test, this paper applied the method to decompose changes in CO2 emission of 27 OECD countries for each 2-year period between 1990 and 2009. The results showed that, in most countries, CO2 emission has dramatically increased over the sample period, and mostly driven by rapid economic growth-scale effect. The results also indicated that scale effect hasn''t offset by the technique effect even though it has played an important role on CO2 emission reduction during the sample period. Lastly, pollution intensive industry has resulted in increasing CO2 emission and expanded in sample countries with relatively high income which have taken a strong environmental standards.
This paper also tried to estimate the impact of foreign direct investment inflow on environmental performance using endogenous environmental policy model. In the empirical result, it is obvious that economic expansion showed a positive effect on incresing CO2 emission and also has reinforced a strong envrionmental regulation, which implied the endogenous relationship between income and environmental standards. As for energy sources, it is also founded that alternative energy source such as clean, non-fossil fuel energy is necessary to improve both sustainable economic growth and environmetal protection.