Energy Innovation Within the Environmental Kuznets Curve Model

As stated above, the EKC model provides a systematic explanation of the relation between the environmental correction process and economic growth. Andreoni and Levinson (1998) showed that decontamination processes mainly depend on the technical effect and that investment in energy innovation processes will contribute to reducing environmental pollution levels. However, this theory also supports the idea that, under the pressure of increasing returns to scale, the innovation process is the key to correcting environmental pollution levels (Fig. 9).

Figure 9 illustrates how energy innovation processes and economic growth achieve a reduction in emission levels after the first stage. As previously shown, the EKC model supports the idea that once economies reach a certain level of income, economic systems begin to reduce their emission levels until they reach a second

Technical effect in the EKC model

Fig. 9 Technical effect in the EKC model (Source Prepared by the authors) turning point, where the scale effect overcomes the composition and technical effects. Figure 9 illustrates the positive effect that the energy innovation process exerts over the scale effect in order to delay the return to a stage of ascending pollution (Balsalobre et al. 2015). This assessment links the EKC’s economic growth-environmental pollution relationship with technological development. Some authors believe that economic growth will not be able, by itself, to resolve contamination issues. In other words, in a scenario where environmental regulation is lacking or absent, given the trajectory described by the economic growth- environmental pollution relationship, the correction of contamination could still be achieved with an unnecessarily high income level (Arrow et al. 1995). Based on this fresh perspective, innovative energy regulations have become a fundamental strategy for long-term growth, and energy policies are central axes. Thus, when economies reach a developed stage, this leads to higher energy consumption and lower rates of environmental pollution because of a strategy of innovation under which increasing returns to scale are able to improve energy efficiency with lower income requirements (Balsalobre et al. 2015).

The EKC model lets us distinguish between still-developing and already- developed economic systems, with the first being an economic model that is based on the over-exploitation of fossil sources and high income rates, where the tertiary sector has low weight. Assuming that, over the course of decades, advances in the energy sector have altered economic systems, the increase in energy improvements is currently leading to the creation of a sustainable model, one that has less energy intensity and lower dependency on non-renewable sources. This new scenario reflects unanimity regarding the need to increase environmental sustainability through the use of low-carbon technologies and the implementation of new technologies. Furthermore, the effectiveness of these actions is linked with a rate of innovation that delays technical obsolescence.

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