Assessing the role of regulatory quality, favouritism, administrative requirement and licencing restriction in curtailing carbon emissions

• Published date: 01 February 2023
• Author: Elliot Boateng,Collins Baah Annor,Mary Amponsah
• Date: 01 February 2023
• DOI: http://doi.org/10.1002/pa.2845

RESEARCH ARTICLE

Assessing the role of regulatory quality, favouritism,

administrative requirement and licencing restriction in

curtailing carbon emissions

Elliot Boateng

1,2,3

| Collins Baah Annor

4

| Mary Amponsah

2,3

1

Department of Economics, Kwame Nkrumah

University of Science and Technology, Kumasi,

Ghana

2

Newcastle Business School, University of

Newcastle, Callaghan, Australia

3

Centre for African Research, Engagement and

Partnership (CARE-P), University of Newcastle,

Callaghan, Australia

4

Policy, Planning, Monitoring and Evaluation

Department (PPMED), Ghana Health Service,

Goaso Municipal Hospital, Goaso, Ghana

Correspondence

Elliot Boateng, Department of Economics,

Kwame Nkrumah University of Science and

Technology, Kumasi, Ghana.

Email: elliot.boateng@knust.edu.gh;elliot.

boateng@uon.edu.au

The urgent need to achieve the Paris Agreement has compelled countries to set miti-

gation targets to curtail carbon emissions. Notwithstanding, stakeholders' effort to

implement emission-reduction policies is often constrained by institutional chal-

lenges. This study provides new evidence about the dynamic relationship between

institutional quality and carbon emissions in 63 industrialised economies. Using a

reduced-form energy emission model and the system GMM technique, we exploit

four institutional quality measures—favouritism, administrative requirement, licencing

restriction and regulatory quality—and analyse their impact on carbon emissions. The

results show that institutions play a fundamental role in mitigating carbon emissions.

However, the abatement effect depends on the regulatory quality, the extent of

favouritism, licencing restrictions and administrative requirements. Our findings

reveal that stringent regulations such as licencing restrictions reduce carbon emis-

sions in the short and long run. Administrative requirement such as emission report-

ing inhibits carbon emission in the short and long run, whereas favouritism worsens

it. The results are robust to alternative model specifications. The findings from this

study highlight the need for policymakers to pay close attention to favouritism, as it

tends to reduce the effectiveness of emission policy regulations. Additionally, we

argue for the need for stringent administrative requirements given its critical role in

internalising carbon emission intensity in industrialised economies.

KEYWORDS

carbon emissions, favouritism, licencing restriction, regulatory quality

1|INTRODUCTION

The Paris Agreement on climate change highlights the policy response

to mitigate global greenhouse gas emissions (IPCC, 2013; Liobikienė&

Butkus, 2017; McCollum et al., 2018; Rogelj et al., 2016). Similarly,

target 13 of the Sustainable Development Goals (SDGs) heightens the

need to promote economic development and environmental quality

by adopting efficient green technology to combat climate change and

its impacts (United Nations, 2015). While these goals are ambitious,

given the extent to which the world depends extensively on non-

renewable energy resources, its success depends on energy policy

regulation and industrial awareness of the adverse effect of carbon

emissions (Bank, 2016; Bonnet et al., 2019; Schwerhoff, 2016). It also

requires a cross-country action and commitment to reducing carbon

emission intensity because its negative externalities pose a greater

health risk to human survival and long-term societal progress (Bridges

et al., 2015; Mokhtar et al., 2014; Turt

os Carbonell et al., 2007). Not-

withstanding, countries' dependence on non-renewable energy to

drive economic gains makes their commitment to reducing carbon

emissions difficult. Besides, multiple signals also indicate that carbon

emissions from human actions are likely to surge in the next two

decades if the global population reaches 9 billion by 2050 (World

Received: 14 February 2022 Revised: 28 September 2022 Accepted: 10 October 2022

DOI: 10.1002/pa.2845

J Public Affairs. 2023;23:e2845. wileyonlinelibrary.com/journal/pa © 2022 John Wiley & Sons Ltd. 1of21

https://doi.org/10.1002/pa.2845

Economic Forum [WEF], 2019). Not only will this surge in population

pose a formidable challenge in promoting a pollution-free environ-

ment (see Bekun et al., 2021; Erdo

gan et al., 2022; Onifade

et al., 2021; WEF, 2019), but also a combination of human economic

activities that demand higher non-renewable energy consumption

could cause the environment to exceed its absorption capacity (Chen

et al., 2019; Nasrollahi et al., 2020; Onifade et al., 2021; Taghvaee

et al., 2017).

So far, various ways have been explored across the policy and

academic circles to examine the causes, consequences and implica-

tions of carbon emissions on environmental quality, including the

strategies required to curtail its adverse effect on the environment

(see Acheampong et al., 2019; Aydin, 2019; Bekun et al., 2021;

Shahbaz et al., 2017; Waheed et al., 2019). Theoretically, studies have

been devoted to analysing the relationship between economic devel-

opment and energy consumption, leading to the establishment of

three hypotheses, namely, the conservation, neutrality and feedback

hypothesis (Chang et al., 2016; Dogan et al., 2017; Leit˜ao &

Balsalobre-Lorente, 2020; Nasreen & Anwar, 2014). The empirical

debate has also centred on economic growth-energy consumption

issues, whereby scholars accounted for financial development, human

and physical capital, urbanisation, carbon emissions and industrialisa-

tion in emission models. Yet, the evidence remains complex and

inconclusive (see Acheampong et al., 2020; Adedoyin & Zakari, 2020;

Afonso et al., 2017; Agboola et al., 2022; Klarl, 2020; Xu & Lin, 2020;

Zheng & Walsh, 2019). In some cases, different aspects of energy

consumption and economic growth, including the mechanisms under

which energy consumption sustains development, have been exam-

ined (see Bartleet & Gounder, 2010; Saud et al., 2018; Latif

et al., 2018), whereas others looked at the role of globalisation in the

economic growth-energy demand nexus (Saud et al., 2018;

Grossman & Krueger, 1991,1995; Ling et al., 2015).

In line with Coase's (1960) seminal paper, which underscores the

need for regulatory intervention, the Paris Agreement on climate

change proposed a market-based standard policy instrument to curb

excessive carbon emissions (Enabulele et al., 2016; Michaelowa

et al., 2019; Ourbak & Magnan, 2018). Despite many countries volun-

tarily agreeing to adopt green technology, non-renewable energy pro-

duction remains the driving stimulus to sustainable growth and

development in industrialised economies (Dyrstad et al., 2019;

Mensah et al., 2019; Zhang et al., 2018). Moreover, global pollution

has not declined, even though international players recognise the

importance of environmental protection (Dieste et al., 2019; Peng

et al., 2020; Wu & Chang, 2020); thus, raising concerns about the suc-

cess of the Paris Agreement. The lack of clarity in the policy discourse

and consensus regarding regulatory quality and its impact on carbon

emission reduction motivates the present study.

This paper contributes to the debate on carbon emissions in

industrialised economies. First, it provides new evidence to show that

the quality of regulation plays a decisive role in curtailing carbon emis-

sion intensity in 63 industrialised economies. We argue that reducing

carbon emissions depends on managing efficient energy use and pro-

moting emission abatement technologies for production purposes

(Amir et al., 2018; Duval & Hamilton, 2002; Matsumura &

Yamagishi, 2017). As a result, the hypothesis underlying our first con-

tribution is that countries' ability to meet emission reduction targets

could be inhibited by institutional weakness. Second, in the absence

of an internationally recognised definition of carbon regulation, three

vital regulatory measures, namely, licencing restriction, favouritism

and administrative requirement, are analysed. Our study is motivated

by the fact that prior studies have examined the role of institutions in

carbon emission (see Khan et al., 2022; Nwani & Adams, 2021;Wu&

Madni, 2021). However, they failed to explore the role of favouritism,

administrative requirements and licencing restrictions in emission

reduction. By extending our analysis to incorporate licencing restric-

tions and administrative requirements, the current study enhances

our understanding of various forms of regulation and their implication

for carbon emission. It and demonstrates that the fear of business

licencing withdrawal for non-compliance reduces carbon emission.

Finally, we show that favouritism in policy compliance worsens emis-

sion intensity in industrialised countries.

The remaining sections are structured as follows. Section 2briefly

discusses the theoretical and empirical debates on institutions and

carbon emissions. Section 3presents the econometric and empirical

strategy. Section 4displays the results and discussions, and Section 5

concludes with policy implications.

2|LITERATURE REVIEW

This section presents brief literature on the impact of regulatory

and institutional quality on carbon emission. The empirical literature

is categorised into two main parts. The first presents a brief discus-

sion of the theoretical literature, and the second presents a sum-

mary of empirical studies in Table 1. Theoretically, the well-known

Environmental Kuznets Curve (EKC) hypothesis has been widely

explored in the literature (Kuznets, 1955). The EKC hypothesises an

inverted U-shaped relationship exists between economic growth

and environmental quality. As shown by Grossman and Krueger

(1995), higher per capita growth is associated with a higher level of

carbon emission, whereas economies with a low level of per capita

growth pollute less. Indeed, the EKC hypothesis has been examined

empirically. However, the existing findings remain inconclusive. For

instance, while other strands of the literature confirm the EKC

(Asongu et al., 2019; Sarkodie & Strezov, 2019), on the one hand,

others do not confirm it (see Friedl & Getzner, 2003; Hossain

et al., 2022). The mixed findings are attributed to the differences in

methodology, context and data span (see Dinda, 2004; Mujtaba

et al., 2021).

So far, the theoretical debate continues, and several hypotheses

have also been advanced by analysing economic development, energy

consumption and carbon emissions. These include the conservation,

neutrality and feedback hypothesis (Chang et al., 2016; Dogan

et al., 2017; Leit˜ao & Balsalobre-Lorente, 2020; Nasreen &

Anwar, 2014). Table 1presents a summary of these discussions and

their implications on the subject under consideration in this study.

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