Per Capita Income, Consumption Patterns, and Co2 Emissions

59 Pages Posted: 22 Aug 2018 Last revised: 6 Feb 2025

See all articles by Justin Caron

Justin Caron

HEC Montreal - Institute of Applied Economics

Thibault Fally

UC Berkeley - ARE Department

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Date Written: August 2018

Abstract

This paper investigates the role of income-driven differences in consumption patterns in explaining and projecting energy demand and CO2 emissions. We develop and estimate a general-equilibrium model with non-homothetic preferences across a large set of countries and sectors, and trace embodied energy consumption through intermediate use and trade linkages. Consumption of energy goods is less than proportional to income in rich countries, and more income-elastic in low-income countries. While income effects are weaker for embodied energy, we find a significant negative relationship between income elasticity and CO2 intensity across all goods. These income-driven differences in consumption choices can partially explain the observed inverted-U relationship between income and emissions across countries, the so-called environmental Kuznets curve. Relative to standard models with homothetic preferences, simulations suggest that income growth leads to lower emissions in high-income countries and higher emissions in some low-income countries, with only modest reductions in world emissions on aggregate.

Suggested Citation

Caron, Justin and Fally, Thibault, Per Capita Income, Consumption Patterns, and Co2 Emissions (August 2018). NBER Working Paper No. w24923, Available at SSRN: https://ssrn.com/abstract=3236729

Justin Caron (Contact Author)

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

Thibault Fally

UC Berkeley - ARE Department ( email )

Berkeley, CA 94720
United States

HOME PAGE: http://are.berkeley.edu/~fally/

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