Assignment 2 - Essay on EKC curve PDF

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REPORT on CO2 EMISSION AND ECONOMIC DEVELOPMENT IN ASEAN COUNTRIES date: 11.03 Prepared : 1613340141 Quang Anh, 1613340073 1613340043 Mi, 1617340058 Trang, 1613340096 Quang Minh, 1613340060 Course title: Environmental Economics TABLE OF CONTENTS Content Page ABSTRACT ...................................

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- REPORT – on CO2 EMISSION AND ECONOMIC DEVELOPMENT IN ASEAN COUNTRIES Hand-in date:

11.03.2018 Prepared by: Vũ Hữu Quyền, 1613340141 Lê Quang Thế Anh, 1613340003 Hồ Thị Phương, 1613340073 Nguyễn Thị Hồng Hoài, 1613340043 Nguyễn Kỳ Mi, 1617340058 Lê Huyền Trang, 1613340096 Phạm Quang Minh, 1613340060

Course title: Environmental Economics

TABLE OF CONTENTS Content

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ABSTRACT ............................................................................................................................................. 1 INTRODUCTION ................................................................................................................................... 2 I. Introduction .................................................................................................................................... 2 II. Objectives of the study. .................................................................................................................. 2 TERMINOLOGY.................................................................................................................................... 3 I. CO2 Emssions................................................................................................................................. 3 II. Environment Kuznet curve............................................................................................................. 3 1. The environmental Kuznets Curve (EKC) .............................................................................. 3 2. Explanation of EKC shape ...................................................................................................... 4 3. Econometrics Framework ....................................................................................................... 4 CONTENT ............................................................................................................................................... 5 I. Main sources of CO2 emissions ..................................................................................................... 5 1. Human resources ..................................................................................................................... 5 2. Natural Sources ....................................................................................................................... 8 II. State of economy and CO2 emission in ASEAN countries ............................................................ 9 1. State and classification of economy in ASEAN countries...................................................... 9 2. State of CO2 emssions in ASEAN countries......................................................................... 11 III. Testing the Environment Kuznet Curve (EKC) in ASEAN countries ......................................... 13 1. High and upper middle income ASEAN countries ............................................................... 13 2. Low – middle ASEAN countries .......................................................................................... 14 IV. The effects of CO2 emission on the development in ASEAN countries ..................................... 16 1. Greenhouse effect ................................................................................................................. 16 2. Ocean acidification ............................................................................................................... 17 3. Changes to plant nutrition & growth levels .......................................................................... 17 4. Smog & ozone pollution ....................................................................................................... 17 5. Ozone layer depletion ........................................................................................................... 17 V. Challenges of reducing CO2 emission in ASEAN countries........................................................ 18 VI. Recommendations ........................................................................................................................ 18 VII. Conclusion ............................................................................................................................ 19 APPENDIX 1 ......................................................................................................................................... 19 APPENDIX 2 ......................................................................................................................................... 20 REFERENCES ...................................................................................................................................... 21

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TABLE OF FIGURES Figure Page Figure 1: An estimated Environment Kuznet Curve (EKC) ..................................................................... 3 Figure 2: A description of variables in the equation 1 .............................................................................. 4 Figure 3: Main sources of CO2 emissions ................................................................................................. 5 Figure 4: Human sources of Carbon Dioxide............................................................................................ 6 Figure 5: Carbon Dioxide emissions from fossil fuel combustion............................................................ 6 Figure 6: Natural sources of Carbon Dioxide ........................................................................................... 8 Figure 7: Summary Statistic of GDP per capita and some emissions per capita in ASEAN countries .. 10 Figure 8:Classification of ASEAN countries in terms of income level .................................................. 11 Figure 9: An analysis of CO2 per capita and population in ASEAN countries ....................................... 11 Figure 10: An Environment Kuznet Curve of high and upper middle income ASEAN countries ......... 13 Figure 11: An Environment Kuznet Curve of low middle income ASEAN countries ........................... 15 Figure 12: Temperature changes in 5 ASEAN countries ........................................................................ 16

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CO2 EMISSION AND ECONOMIC DEVELOPMENT IN ASEAN COUNTRIES Vũ Hữu Quyền, 1613340141 Lê Quang Thế Anh, 1613340003 Hồ Thị Phương, 1613340073 Nguyễn Thị Hồng Hoài, 1613340043 Nguyễn Kỳ Mi, 1617340058 Lê Huyền Trang, 1613340096 Phạm Quang Minh, 1613340060 Foreign Trade University 91 Chùa Láng Street, Dong Da District, Hanoi

ABSTRACT Development and urbanization are very important for developing countries, but rapid economic growth alone is not an indicator of development for a dynamic and sustainable economy. Recently, studies on the environmental Kuznet Curve (EKC) revealed that environmental degradation occurs in tandem with economic growth. This profound result has led many economists interested to study about economic growth and environmental degradation. Environmental Kuznets Curve (EKC) hypothesis describes relationship between environmental degradation and level of income follows an upside down U path. Our asignment aims to demonstrate EKC for the ASEAN case, using emissions data from variety sources. In this article, we focus on emphasizing the relationship between economic development and environmental destruction. Using realistic models and data, we will explain how fossil fuel combustion, transportation and industrialization massively increase CO2 concentrations in ASEAN countries, which further contributed to global warming. We use time series data from 1990 - 2016 in 10 ASEAN countries namely Malaysia, Indonesia, Vietnam, Thailand, Philippines, Laos, Brunei, Cambodia, Myanmar and Singapore. At the end, we also implicate some the effect of CO2 emission that cause deterioration in the environment as well as holding a number of solutions to these issues and long-term plan to minimize its volume and effects. Key words: ASEAN countries, Environmental Kuznets Curve (EKC), CO2 emission.

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INTRODUCTION I. INTRODUCTION Firstly, carbon dioxide (CO2) is never out of concern and related to global warming. It is released into Earth’s atmosphere mostly by the burning of carbon-containing fuels and the decay of wood and other plant matter. Under all conditions found naturally on Earth, CO2 is an invisible, odorless gas. Although other gases are also causing Earth’s climate to warm, CO2 alone is responsible for about three-fourths of global warming. Emissions of CO2 predate the human race by billions of years and are essential to life on Earth, since the natural greenhouse effect keeps Earth’s average surface temperature above freezing. In the deep geological past, atmospheric CO2 has sometimes been much higher than today. On the other hand, until human beings began to burn large amounts of fossil fuel in the late eighteenth century, CO2 had been stable for about 20 million years. Due to anthropogenic (human-caused) emissions, atmospheric CO2 is now significantly higher than at any time in the last 800,000 years and probably in the last 20 million. This change has happened in a mere 200 years, which is instantaneous by geological standards. Secondly, the amount of CO2 in the atmosphere has increased greatly since human beings began burning large amounts of coal and petroleum in the nineteenth century. In more recent times, this source of CO2 emissions has increased rapidly, while destruction of forests has also become a major source of CO2. Atmospheric concentrations of several other gases, including methane (CH4) and nitrous oxide (N2O), have also been increased recently by human activities and are contributing to greenhouse warming of the planet. Thirdly, to ASEAN countries, this problem has become serious recently. According to the data in the IEA report, in 2005, the total emissions from transport in Vietnam were 20.3 million tons; national road transport emissions totaled 16.8 million tons. Motorcycles are the largest emitters in Vietnam, contributing 53 percent of CO2 emissions in 2005. Under the business as usual scenario, carbon emissions from transport sector are expected to be increase to 144 million tons while road transport will have reached 126 million tons. It is estimated that there will be an annual increase in total CO2 e missions of 4.5 percent. A later report provided that, in 2009, Indonesia ranked sixteenth in the world, and also the first in ASEAN for carbon dioxide emissions with total 413.29 million tons. The next was Thailand (253.58 million tons, 3.8 tons per capital) and then Vietnam (98.76 million tons in total, 1.12 tons per capital ) If the International Energy Agency (IEA) is to be believed, the amount of carbon emissions from transport in ASEAN nations will double by 2050. At the same time, carbon emissions from transport in developed world will remain almost unchanged. The current emissions from transport account for nearly one-fourth of the total amount of artificially released CO2. IEA predicts that the share of emissions from developing countries, which is 35 per cent today, will nearly double to 66 per cent by 2050. Therefore, we realise the impacts of Carbon Dioxide CO2 in our lives, especially to ASEAN countries, including Vietnam. Our assignment is aimed at an analysis of effects of CO2. Besides, we use Environmental Kuznet Curve (EKC) to test and analyse the facts of ASEAN countries. II. OBJECTIVES OF THE STUDY. The objective of the study is to prove Environmental Kuznet Curve (EKC) with the figures of ASEAN countries. We pointed out basic terms related to CO2 emissions and EKC, afterwards answering the following issues: 1. How is the state of CO2 emissions and economy in ASEAN countries?

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2. What is the main source of CO2 emissions? 3. We analyse the effects of CO2 emissions in ASEAN countries. Finally. we suggest to implement policies to government as well as measurements to corporations. Thereby, we will help corporations manage the quality of enivironment and make it better.

TERMINOLOGY I. CO2 EMSSIONS Carbon dioxide (chemical formula CO2) is a colorless gas with a density about 60% higher than that of dry air. Carbon dioxide consists of a carbon atom covalently double bonded to two oxygen atoms. It occurs naturally in Earth's atmosphere as a trace gas. Under all conditions found naturally on Earth, CO2 is an invisible, odorless gas. It is removed from the atmosphere mostly by plants, which extract carbon from CO2 to build their tissues, and by the oceans, in which CO2 dissolves. Emissions means the release of greenhouse gases and/or their precursors into the atmosphere over a specified area and period of time. Carbon dioxide is the most significant long-lived greenhouse gas in Earth's atmosphere. Since the Industrial Revolution anthropogenic emissions – primarily from use of fossil fuels and deforestation – have rapidly increased its concentration in the atmosphere, leading to global warming. II.

ENVIRONMENT KUZNET CURVE

1. The environmental Kuznets Curve (EKC) The environmental Kuznets curve is a hypothesized relationship between various indicators of environmental degradation and income per capita. In the early stages of economic growth degradation and pollution increase, but beyond some level of income per capita (which will vary for different indicators) the trend reverses, so that at high-income levels economic growth leads to environmental improvement. This implies that the environmental impact indicator is an inverted U-shaped function of income per capita. An example of an estimated EKC is shown in Figure 1.

Figure 1: An estimated Environment Kuznet Curve (EKC)

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The EKC is named for Kuznets (1955) who hypothesized income inequality first rises and then falls as economic development proceeds. The Kuznets curve implies that as a nation undergoes industrialization – and especially the mechanization of agriculture – the center of the nation’s economy will shift to the cities. As internal migration by farmers looking for better-paying jobs in urban hubs causes a significant rural-urban inequality gap (the owners of firms would be profiting, while laborers from those industries would see their incomes rise at a much slower rate and agricultural workers would possibly see their incomes decrease), rural populations decrease as urban populations increase. Inequality is then expected to decrease when a certain level of average income is reached and the processes of industrialization – democratization and the rise of the welfare state – allow for the benefits from rapid growth, and increase the per-capita income. Kuznets believed that inequality would follow an inverted “U” shape as it rises and then falls again with the increase of income per-capita. 2. Explanation of EKC shape A number of papers have developed theoretical models about how preferences and technology might interact to result in different time paths of environmental quality. The different studies make different simplifying assumptions about the economy. Most of these studies can generate an inverted U shape curve of pollution intensity but there is no inevitability about this. The shape of the curve can be explained as follows: when GDP per capita rises, it leads to a degraded environment; However, when it reaches a certain point, increasing per capita GDP reduces environmental degradation. At low levels of income, it is difficult to mitigate pollution because individuals tend to use limited income to meet their basic consumption needs. When income levels reach a certain level, individuals begin to consider the choice between environmental and consumer quality, resulting in increased environmental damage but at a lower rate. After reaching the conversion threshold, spending on waste treatment will increase, as each individual wishes to improve the quality of the environment by using more and the quality of the environment begins to improve along with economic growth. 3. Econometrics Framework According to “Environmental Kuznets Curve” article of David I.Stern, the standard models of EKC were functions of income levels, just as the regression model here in: ln (E/P)it=αi +γt+β1ln (GDP/ P)it+β2[ln (GDP/P)] it2 +εit, (1) In which: Variable E P GDP ε ln i t

Description Emissions Population Gross domestic product Random error term Natural logarithms Regions Years Figure 2: A description of variables in the equation 1

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The author assumes that: In any country at a given income level, even if the level of emissions per capita is different, the elasticity of income remains the same. A restriction is applied that regressions are only appropriate when the indicator levels fall to zero or become negative in the case of deforestation where afforestation can occur. The point where emissions or concentrations are at a maximum, called “the turning point”, can be found using the formula: τ=exp [-β1/(2β2)] The writer said that when people studies the EKC, most of them try to estimate both the fixed and random effects models. Whereas the fixed effects model can usually be estimated consistently, the data of countries and times are conditional. Therefore, an EKC estimated with fixed effects using only data form developed countries might not say much about the future of developing countries. On the other hand, many studies have found that the random effects model cannot be estimated consistently, and so it is unclear what we can infer from the majority of EKC studies.

CONTENT I. MAIN SOURCES OF CO2 EMISSIONS There are both natural and human sources of carbon dioxide emissions. Natural sources include decomposition, ocean release and respiration. Human sources come from activities like cement production, deforestation as well as the burning of fossil fuels like coal, oil and natural gas. Sources

Natural Sources

Human Sources

Ocean Exchange

Fossil Fuel Use

Land Use

Industry Process

Soil Respiration Electricity

Transportation

Plant Animal Respiration Volcanic eruption

Figure 3: Main sources of CO2 emissions 1. Human resources Since the Industrial Revolution, human sources of carbon dioxide emissions have been growing. Human activities such as the burning of oil, coal and gas, as well as deforestation are the primary cause of the increased carbon dioxide concentrations in the atmosphere.

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87 percent of all human-produced carbon dioxide emissions come from the burning of fossil fuels like coal, natural gas and oil. The remainder results from the clearing of forests and other land use changes (9%), as well as some industrial processes such as cement manufacturing (4%). 1.1. Fossil fuel combustion The largest human source of emissions, especially carbon dioxide is from the combustion of fossil fuels. This produces 87% of human carbon dioxide emissions. Burning Figure 4: Human sources of Carbon Dioxide these fuels releases energy which is most commonly turned into heat, electricity or power for transportation. Some examples of where they are used are in power plants, cars, planes and industrial facilities. In 2011, fossil fuel use created 33.2 billion tonnes of carbon dioxide emissions worldwide. The 3 types of fossil fuels that are used the most are coal, natural gas and oil. Coal is responsible for 43% of carbon dioxide emissions from fuel combustion, 36% is produced by oil and 20% from natural gas. Coal is the most carbon intensive fossil fuel. For every tonne of coal burned, approximately 2.5 tonnes of CO2e are produced. Of all the different types of fossil fuels, coal produces the most carbon dioxide. Because of this and it's high rate of use, coal is the largest fossil fuel source of carbon dioxide Figure 5: Carbon Dioxide emissions from fossil fuel combustion emissions. Coal represents one-third of fossil fuels' share of world total primary energy supply but is responsible for 43% of carbon dioxide emissions from fossil fuel use. During 2000–2010, total primary energy demand in Brunei Darussalam increased at 7.6% per year, reaching 1.20 Mtoe in...