Long run non-linearity in CO2 Emissions: The I(2) Cointegration Model and the Environmental Kuznets Curve

Abstract I use the I(2) cointegration model in order to assess the empirical relevance of the environmental Kuznets curve for CO2 emissions in the US between 1960 and 2014. This takes the non-linearity of CO2 emissions into account by allowing for using data that are integrated of order two, I(2), directly in the model. This provides an extensive dynamic analysis of the relationship between emissions and economic growth as postulated by the environmental Kuznets curve both in the short, medium and long run. The results indicate that the main driver behind the non-linear shape of US CO2 emissions in the long run is an increase in emissions caused by energy use and a decrease caused by more trade and using less polluting energy sources. GDP only have short run effects. Hence, I do not find evidence in favor of a long run relationship between economic development and the concave shape of emissions as suggested by the environmental Kuznets curve. JEL classification: C32; Q43; Q56