A Time-Varying Analysis of Pollution Spillovers Among EU Countries: Evidence from a TVP-VAR Connectedness Approach

Abstract

This study explores the spillover effects of carbon emissions among the 16 EU countries from 1980Q1 to 2023Q3, employing the TVP-VAR connectedness methodology. Spillovers are calculated based on the time-varying forecast error variance decompositions of CO₂ emissions for each country. As CO₂ emissions for all countries are integrated of order one, first differences are employed in the analysis. The findings reveal a high level of connectedness among EU countries, with values ranging from 68% to 92% and a Total Connectedness Index of 75.45. Regarding net connectedness, Germany and the UK emerge as the main CO₂ transmitters, with net values of 15.26 and 15.15, respectively, while Greece and Bulgaria are the main receivers, with net values of −30.34 and −14.85. This high connectedness underscores the importance of collaborative efforts among EU countries in developing policies to mitigate environmental degradation. The findings also indicate a positive correlation between economic activity and pollution, with higher-income countries tending to contribute more to pollution spillover. Our results further suggest that EU member states should endeavour to increase the use of renewable energy sources while phasing out nonrenewable ones, in accordance with the overarching objective of environmental protection.

Keywords

• Spillover
• TVP-VAR connectedness
• Transmitter
• Receiver
• CO2 emissions
• EU

References

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