A DEFINITIVE MODEL: Measuring Impact on Carbon (Co2) Emissions

By Apresai Oghenemagan Kereokiye

     Abimbola Shode

     Yetunde Esan

     Nneka Iyabode Eze

      Kingsley Onuoha

RE-STATING THE MODEL

 Results from the previous sections have shown that our model is mis-specified, that the interaction between EU and OM is not significant, and that a cubed term could possibly improve our model. As such, we can re-state a new model taking out the insignificant interaction variable and introducing a cubed variable.

The new model is stated thus;

Log(CO_2pc) =b₁+b₂REN +b₃(REN)³ + b₄EI + b₅EU + b₆OM + b₇REN(OM) + b₈EI(OM) + e_t

The expectation of the signs of the coefficients remains the same. We are assuming that all the OLS (Ordinary Least Squares) assumptions hold.

The regression result is as shown below;

     Table 13: Summary of regression result

  

SUMMARY OF THE RESULTS

The p value of the overall model is less than 0.05, indicating that our model is significant.

Similarly, the p values of all the parameters are less than 0.05 indicating that all variables are statistically significant and our model is reliable. This is corroborated by the fact that the critical t value is 1.990, taken at 2.55 and 81 degrees of freedom, and the t value of all the coefficients are greater than the critical value. As such, all parameters in the model are statistically significant.

The F value is 50.36356, which is greater than the critical values of 2.13, also showing that as a whole our model is statistically significant.

Small values of the standard error and the narrow confidence interval also indicate that our estimates are reliable.

 The R-square has increased to approximately 82 percent indicating that this model is a much better specification than the previous one.

INTERPRETATION OF THE MODEL

Having obtained our parameters, the model can now be stated as;

Log(CO_2pc) =1.422971 - 4.999REN + 1.299459 (REN)³ + 2.359133EI + 0.301723EU + 0.706023OM -3.39779EI(OM) + 4.534986REN(OM) + e_t

Constant – The coefficient is 1.422971, so if renewable energy, renewable energy cube, energy intensity, European Union membership, OECD membership, the interactions between energy intensity /OECD membership and renewable energy/OECD membership are all held constant at zero, there will still be a 1.422971 units of Carbon dioxide (CO₂) in the atmosphere. This may be attributed to the forces of nature.[HK1] 

Renewable Energy – This model[m2]  states that for every 1 percent rise in renewable energy, the level of carbon emission is expected to drop by 4.999 units, holding all other variables constant. The sign of the coefficient is negative as expected.

Energy Intensity - Similarly, holding all other variables constant, a unit increase in the energy intensity of a country will lead to a 2.359133 unit rise in carbon emissions. The sign of the coefficient is positive (as expected).

European Union Membership - Also, holding all other variables constant, if a country is a member of the European Union the carbon emission is expected to increase by 0.301723. This result is as expected, because the members of the EU are pre-dominantly developed countries with high energy consumption patterns.

OECD membership - It also says that if a country is a member of the OECD, its carbon emissions is expected to increase by 0.706023 units. This is as expected for the reasons discussed above.

EI and OECD membership interaction - The interaction between EI and OECD shows that if we hold all other variables constant, the carbon emission of a country which is a member of the OECD as well is expected to fall by 3.39779. This result does not seem strange as we can observe that if a country is a member of the OECD, the policies put forward by the organization can lead to its member countries adopting policies that foster economic growth but reduce the level of carbon emissions that a country emits. It can be seen that the net effect on carbon emission is a 1.038657 drop in carbon levels.

 REN and OECD membership interaction - Interaction between renewable energy and OECD membership indicates that if a country is a member of the OECD and it also has renewable energies in its energy portfolio, then its carbon emission is expected to increase by 4.534986, holding all other variables constant. The result is slightly contradictory because we would expect the OECD membership to further reduce the carbon emissions. Based on the fact that OECD members are large consumers of energy, they have a large amount of carbon emissions and the model is simply saying that the net effect is a 0.464014 decline in carbon emissions.

In other words, if a country is a member of the OECD and also has renewable energy in its energy mix, the carbon emissions will not be reduced significantly as there is a already a path dependence on fossil fuel.

ECONOMIC DESCRPTION OF RESULTS

The economics result of the regression model shows a good fit. The constant coefficient has a positive value 1.422971 which shows that assuming the coefficients of the independent variables are equal to zero: there are some other factors that are not explained in the model but which affect the carbon dioxide emissions of a country. These factors are called exogenous factors.

The negative sign for Renewable energy -4.999 conforms to the sign expectation. Since renewable energies are known to emit less carbon dioxide. This shows an inverse relationship. An increase in Renewable energies in a country’s energy mix will result to a further reduction in the quantity of CO₂ emitted. It is worthy of note that a country like United States with relatively high fossil fuel intensity may not witness a very significant CO₂ reduction.

Energy Intensity has a positive sign 2.359133 in the model, which shows that an increase in a country’s energy intensity will cause an increase in CO₂ emitted by that particular country. The economic relationship between CO₂ and Energy Intensity is a positive relationship, as an increase in EI will lead to an increase in CO₂.

The positive sign for being a European Union and OECD members conforms to the sign expectation, since the European economies and industrialized countries are predominantly powered by fossil fuels. It is expected that as more European Union and OECD members pursue economic growth and development, the emissions of CO₂ will increase by 0.30172 and 0.706023.

OUR CONCLUSION

This regression model has therefore established that the impact of qualitative variables such as  membership of OECD and the EU as well as quantitative variables such as growth of renewables, energy consumption and energy intensity of the economy do have an impact on the level of carbon emissions in an economy.

NUTSHELL:

This is the final installment in a 5-part series which seeks to employ a quantitative approach to investigating the impact of OECD and EU membership on Carbon (CO2) Emissions. In the first instalment, the four factors which are believed to affect the level of carbon emissions in a country's atmosphere/ climate were outlined by Yetunde in order to lay the foundation upon which models would be built by the team so as to further test for and establish their case in the search for answers as to the causal dynamics in this relationship. In the second installment, the Carbon Emission function was explored by Nneka- expressing this relationship in form of two preliminary models; an econometric model and a mathematical model; this was with a view to outlining the base for which data would be compiled in order to run several analyses of the causal relationships that exist- if any. In the third instalment, Oghenemagan's investigations revealed that though the model variables are overall statistically significant, there existed some mis-specifications in the model. In the fourth installment, Abimbola was able to establish via durbin-watson and Ramsey RESET tests that the model is adequately specified but will need slight adjustments. In this final installment, Kingsley has been able to bring it all home; the models have been re-specified and the causal relationships have been interpreted and laid out in plain english. This is indeed an authoritative study with results that will be useful in guiding further research and policy considerations now and for the future. A fantastic intellectual showpiece. To view Kingsley's professional profile and for more information on this article please click here.-->