Energy transition, government effectiveness and CO₂ emissions by income groups: Panel data evidence from an extended EKC approach

Abstract

This study examines the determinants of per capita CO₂ emissions across income groups for 140 countries over 2002–2021. The Environmental Kuznets Curve framework is extended by incorporating per capita income, squared income, renewable energy consumption, fossil fuel consumption, energy intensity, urbanization, and government effectiveness. Countries are classified into four World Bank income groups, and the model is estimated separately for the full sample and each group. Following diagnostic tests, a fixed-effects model with Driscoll–Kraay standard errors is employed. The results show that per capita income is positively associated with CO₂ emissions in all samples. The squared income term is negative and statistically significant only in the full sample and high-income group; however, estimated turning points largely lie outside observed income ranges. Renewable energy consumption is negatively associated with emissions, whereas fossil fuel consumption and energy intensity are positively associated. Overall, the findings indicate that environmental improvement cannot be expected from income growth alone and should be considered together with energy structure, energy efficiency, institutional capacity, and income-group heterogeneity.