Environmental-economic efficiency for carbon neutrality: the role of eco-innovation, taxation, and globalization in OECD countries

ABSTRACT

The aim of this paper is to examine the relationship between three determinants – environmental patents, environmental taxation and trade globalization – and the environmental-economic efficiency of 29 OECD countries between 2005 and 2020. Using the Global Malmquist-Luenberger index, this research computes the environmental productivity growth and its main drivers – the catch-up and the frontier shift terms. Besides, dynamic panel linear models are applied to investigate how the three institutional variables affect the dynamics of the computed efficiency indices. Results are as follows: firstly, eco-innovation is the most relevant factor in boosting the environmental productivity growth, pushing forward the technological frontier, and spurring the catch-up term. Secondly, environmental taxation is an ineffective policy instrument in promoting the sustainable growth and technological frontier advancements, having positive impacts only on the catch-up term. Thirdly, trade globalization reveals to hinder the sustainable growth and its two main drivers.

KEYWORDS:

• Environmental-economic efficiency
• patents
• taxes
• OECD
• trade globalization

JEL CLASSIFICATION:

• C14
• Q50
• H23

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/00036846.2023.2206634

Notes

¹ Trade globalization covers de facto trade including trade volume as well as de jure trade including trade agreements, trade taxes, tariffs, etc., which are important for conducting sustainable trade, however, previous environmental literature has not focused on the impact of de jure trade globalization on environmental quality.

² The attempt to overtake circularity problems was proposed by Pastor and Lovell (2005) who developed GM index as an updated version of Malmquist index. However, GM index does not measure the environmentally harmful by-product effects. The attempt to overcome instead the infeasibility linear program issue was proposed by Chung, Färe, and Grosskopf (1997) by applying the window analysis.

³ Energy production plus energy imports, minus energy exports, minus international bunkers, then plus or minus stock changes.

⁴ Carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), chlorofluorocarbons (CFCs), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3).

⁵ This function seeks the maximal increase in desirable outputs while simultaneously reducing undesirable outputs. The direction vector $\mathit{g}$, determines the direction by which desirable outputs increase and undesirable outputs decrease.

⁶ OECD (2022a), Patents on environment technologies (indicator). doi: 10.1787/fff120f8-en (Accessed on 06 December 2022).

⁷ OECD (2022b), Environmental tax (indicator). doi: 10.1787/5a287eac-en (Accessed on 06 December 2022).

⁸ https://kof.ethz.ch/en/data/kof-time-series-database.html..

⁹ The reader is referred to https://kof.ethz.ch/en/forecasts-and-indicators/indicators/kof-globalisation-index.html for a complete analysis of the structure of the index and the method of computation.

¹⁰ If there is not serial correlation across $u_t$, the vectors $\mathit{M}{L}_{\mathit{t}-2},\mathit{M}{L}_{\mathit{t}-3},\dots ,\mathit{M}{L}_1$ are good instruments for $\mathrm{\Delta M}{L}_{\mathit{t}-1}$ since they are not correlated neither with $u_t$ nor with $u_{\mathit{t}-1}$.

¹¹ Remember that too many instruments do not compromise consistency, but do dramatize the distance of feasible GMM from the asymptotic ideal.