Testing the Role of Oil Production in the Environmental Kuznets Curve of Oil Producing Countries: New insights from Method of Moments Quantile Regression

Abstract

The global economic growth has triggered the continual increase in oil demand for transportation and petrochemical sectors which offshoots environmental pollution. Though there exists literature on environmental Kuznets curve, however, very few examine the scope in the light of fossil fuel energy production. This paper investigated the dynamic effect of oil production on carbon emissions in 15 oil-producing countries by accounting for the role of electricity production, economic growth, democracy, and trade over the period 1980-2010. Using the novel Method of Moments Quantile Regression (MMQR) with fixed effects, the results found an inverted U-shape relationship between economic growth and CO2 emissions only at median and higher emission countries, thus, validating the environmental Kuznets curve hypothesis. Oil production increases CO2 emissions significantly from the first to sixth quantiles with greater effect at the lowest quantile and weaker effect at the highest quantile. Electricity production was found to increase CO2 emissions while trade condenses CO2 emissions across all the quantiles thereby confirming the pollution halo hypothesis for oil-producing countries. The effect of democracy was positive across all the quantiles but only significant in countries with average CO2 emissions. The findings provide insight for policymakers to mitigate CO2 emissions in oil-producing countries through diversification and clean energy technologies such as carbon capture and storage.