Catch-Up with Me if You Can: An empirical analysis of convergence of carbon emission intensity in the EU power sector

Abstract: The anthropogenic impact on climate change is discernible and the power sector is known to be one of the main contributors of greenhouse gas emissions. This thesis takes a cross-country sectoral approach with the overall objective of analyzing convergence of carbon emission intensity in electricity generation across the power sectors in the EU. A univariate time-series approach is used to study stochastic convergence and a fixed effects estimator is applied to investigate beta-convergence. We employ a panel dataset of the current 28 EU member states spanning from 1995 to 2015. The results from three different panel unit root tests consistently provide support for the existence of stochastic convergence. The results provide strong support for the existence of beta-convergence and we conclude that more carbon intensive countries are catching up with the less carbon intensive countries. The results suggest that countries with a more stringent energy tax converge toward a lower path of carbon intensity, whilst wealthier countries tend to converge toward a higher path of carbon intensity. The speed of convergence is not found to be conditional on the development of the EU ETS carbon prices or the price of fossil fuels.