Household Environmental Kuznets Curves: Evidence from Passenger Transport Emissions

Abstract

Passenger vehicles are a key economic sector and represent a growing share of energy consumption and emissions in many countries. Understanding how emissions from passenger vehicles are linked to household income is important for assessing distributional impacts of decarbonization policies, evaluating potential trajectories for energy consumption and emissions, and ensuring an equitable energy transition. The goal of this analysis is to investigate the income-pollution relationship for passenger vehicles using detailed U.S. survey data. Specifically, the analysis tests for evidence of an Environmental Kuznets Curve (EKC) for household passenger vehicle CO2 emissions, which refers to a non-monotonic U-shaped relationship between income and emissions. Although the literature on economy-wide EKCs is vast, sector-specific analysis of household transport emissions is less common, is subject to considerable controversy, and is over a decade old in many instances, which does not account for recent trends in vehicle electrification and fuel economy. This analysis is the first to provide evidence for the U.S. transport, the highest-emitting sector in the world’s second-highest emitting country. Over time, technological progress and regulatory standards can lower emissions of subsequent vehicle vintages, and higher-income households tend to have newer vehicles. At the same time, wealthier households are more likely to have a greater number of vehicles and drive them more, as this analysis demonstrates. More recently, electric vehicles are increasing as a fraction of new sales and may be correlated with income, which can lower emissions depending on the emissions intensity of the grid mix.