Costless CO₂ emissions abatement through improved government effectiveness

ABSTRACT

The withdrawal of Canada, Japan, New Zealand, and Russia from the Kyoto Protocol, the non-ratification of the United States at the onset, and the exemption given to China and India indicate that five out of the ten largest economies in the world, accounting for approximately 50% of the world GDP (as of 2021), have turned away from the Kyoto Protocol. This apprehension can plausibly be explained by the potential loss of productivity resulting from abatement of CO2 emissions. Therefore, this study examines the marginal effect of CO2 emission abatement on technical efficiency and how it can be moderated by government effectiveness. The following are the findings of this study: (1) inclusion of the pollution effect in the modelling of technical efficiency is necessary as it significantly changes the technical efficiency score ranking; (2) the opportunity cost of CO2 emissions abatement exists in the form of productivity loss but is significantly moderated by government effectiveness. These findings are important as they aid policymakers in mapping out a strategy for the desired costless abatement of CO2 emissions.

KEYWORDS:

• CO2 emissions abatement
• government effectiveness
• technical efficiency
• stochastic frontier analysis

JEL CLASSIFICATIONS:

• Q01
• H11
• O47

Disclosure statement

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

Data availability statement

The data that support the findings of this study are openly available in Open Science Framework at http://doi.org/10.17605/OSF.IO/CYZ2D.

Notes

1 Estonia, Iceland, Latvia, and Lithunia are dropped due to unavailability of market capitalization data.

2 The Base model consists of the estimation results with $\mathrm{co}{2}_{\mathrm{it}}$ and $\mathrm{co}{2}_{\mathrm{it}}\ast \mathrm{govef}{f}_{\mathrm{it}}$ dropped. Model 1 constitutes the estimation results of the full empirical model described in Sections 2 and 3. Model 2 presents the results of the re-estimation of Model 1 after excluding the two countries with the lowest technical efficiency scores from the sample. Model 3 presents the results of the re-estimation of Model 2, after replacing $\mathrm{co}{2}_{\mathrm{it}}$ with $\mathrm{co}2\mathrm{inte}{n}_{\mathrm{it}}$.