Technological progress and innovation, their decoupling effects on carbon emissions and economic growth exploring the environmental curve within the EU : A quantitative study

Abstract: Climate change is one of the highest priority problems which needs to be addressed. The Paris Agreement focuses on zero-carbon solutions and to stop global warming while the United Nations highlights 17 sustainability goals. Climate action is one of those goals aiming to increase resilience to climate hazards and implement national policies and strategies towards climate change. Economic growth is also one of the United Nation’s sustainability goals and should not be compromised. This thesis is investigating how economic growth can be maintained while reducing carbon emissions. To reach this objective carbon emissions need to be decoupled from economic growth and this study analyses the key factors that drive decoupling and how the objective can be achieved. The study was performed over 14 countries during 2000 to 2019 within the EU, using secondary data from open sources. Tapio’s decoupling elasticity model was considered for the observed countries, and a quantitative analysis over carbon emissions, economic growth and several other variables was performed over the panel data using regression models. The shape of the environmental curve was alsoinvestigated using a regression model. The results showed that carbon emissions can be decoupled from economic growth where renewable energy, environmental patents and investments in research and development are key factors. Renewable energy is considered as a proxy for new technologies while environmental patents and investments in research and development, as proxies for innovation. Energyconsumption played a vital role since it decreased less than carbon emissions during those years, but at the same time economic growth could be increased. The quantitative analysis showed that renewable energy, energy intensity, environmental patents, foreign direct investments, and population growth aresignificant factors that can reduce carbon emissions. It is also shown that increases in gross domestic product (GDP) drives carbon emissions increases. The analysis provided indications for an N-shaped environmental curve. Investments in renewable energy, environmental patents and energy efficiency are principal factors to reach the climate goals of reducing carbon emissions without sacrificing economic growth. For future research, it would be interesting to see how individual sectors or clusters of countriesare affecting the results. Another suggestion is to study the pandemic period (2020-2021) and the effect of the latest energy crisis linked with the war in Ukraine to understand the impacts on carbon emissions and economic growth.