Coordinating technological progress and environmental regulation in CO2 mitigation: The optimal levels for OECD countries & emerging economies

Abstract

As technological progress and environmental regulation are not only important drivers of but also the double-edged swords in mitigation of CO2 emissions, it is important to figure out their optimal threshold values for CO2 emissions' reduction. This paper employs the panel smooth transition regression technique to explore these optimal values in the case of OECD countries and emerging economies. The results show that: (1) OECD countries are at a level of excessive technological progress, which will have a rebound effect and increase CO2 emissions. (2) Emerging economies are under a strict level of environmental regulation, which will lead to serious ‘green paradox’ effects and harm the economic development. Moreover, they have great potential to achieve CO2 emissions reduction targets through technological progress. (3) Due to the rebound effect, the concentration of environment-related technologies should be shifted from improving energy efficiency to reducing carbon emissions directly such as capture, storage, sequestration or disposal of greenhouse gases. (4) OECD countries should provide low-carbon technical support to emerging economies. In addition, because of the existence of heterogeneity, OECD countries ought to determine their levels of technological progress and environmental regulation according to their own actual conditions.