Comparing the Environmental and Energy Kuznets Curves in Japan: A Spatial Econometric Approach

This study investigates the dynamic interplay among CO2 emissions, electricity consumption, and economic growth in Japan following the 2016 electricity market liberalization. The purpose is to determine whether the Environmental Kuznets Curve (EKC) and Energy-Environmental Kuznets Curve (EEKC) hypotheses hold when accounting for spatial dependencies across Japan’s 47 prefectures, and how the 2016 market reforms have influenced these relationships. We test two primary hypotheses: first, that Japan has surpassed the EKC turning point, resulting in a downward trajectory where CO2 emissions decline as economic growth continues; and second, that liberalization has facilitated the adoption of renewable energy, leading to an inverted U-shaped relationship between growth and electricity consumption. Using spatial econometric methods, the analysis reveals that Japan has successfully decoupled growth from emissions, while finding an inverted U-shaped relationship between economic growth and electricity consumption. These findings suggest that policymakers should emphasize regional integration and sector-specific green innovation to sustain this progress.