Determinants of CO2 emissions in a small open economy

The aim of the paper is to explore the relationship between economic development and carbon dioxide (CO2) emissions for a small open and industrialized country, Austria. We test whether an Environmental Kuznets Curve relationship also holds for a single country rather than concentrating on panel or cross-section data for a set of countries. A cubic (i.e. N-shaped) relationship between GDP and CO2 emissions is found to fit the data most appropriately for the period 1960-1999, and a structural break is identified in the mid-seventies due to the oil price shock. Furthermore, two variables are additionally significant: import shares reflecting the well-known pollution haven hypothesis, and the share of the tertiary (service) sector of total production (GDP) accounting for structural changes in the economy. Emission projections derived from this single country specification support the widely held opinion that significant policy changes are asked for when implementing the Kyoto Protocol in order to bring about a downturn in future carbon emissions. (C) 2003 Elsevier Science B.V. All rights reserved.