Environmental effect of high-, upper, and lower middle-income economies' energy mix: Is there a trade-off between unemployment and environmental quality?

The fact that scenarios of high unemployment potentially offer the opportunity for improved environmental sustainability remains a dilemma. In instances when environmental sustainability is triggered by increased unemployment, that poses a challenge in the simultaneous achievement of sustainable development goals (SDGs) 8 (decent work and economic growth) and 13 (climate action). On the basis of this concern, in this study, we examine whether a swap association exists between unemployment and environmental quality vis-a-vis the environmental Phillips curve (EPC) hypothesis for high-, upper, and lower middle-income (HUmLmI) economies (comprising both developed and developing countries) over the period 1990-2020. We used the novel dynamic autoregressive distributed lag simulation approach. From the findings, the EPC hypothesis is not valid in high-income (developed) economies in the short and long term. However, the validity of the EPC hypothesis was upheld in the upper and lower middle-income (developing) economies. This implies that the lack of decent work opportunities/high unemployment rates hampers environmental quality in high-income countries, promotes environmental quality in upper middle-income countries, and does not drive environmental quality in lower middle-income countries. In addition, economic growth and the use of fossil energy exacerbate environmental degradation. On the other hand, the consumption of renewable energy sources reduces environmental woes by -0.22, -0.54, and -1.15 in HUmLmI countries, respectively. This shows that renewable energy sources adapt to the environmental sustainability motive. These results imply that policy instruments to drive SDGs 8 and 13 in these income-categorized economies should be case specific rather than taking a unilateral policy approach.

Automated summary

The potential for improved environmental sustainability in scenarios of high unemployment is a dilemma in achieving sustainable development goals 8 and 13. This study examines the association between unemployment and environmental quality using the environmental Phillips curve (EPC) hypothesis in high-income and middle-income economies. The validity of the EPC hypothesis differs across income categories, suggesting the need for case-specific policy instruments to drive sustainable development goals.