Paris climate agreement and global environmental efficiency: New evidence from fuzzy regression discontinuity design

The most remarkable global climate agreement to date, the Paris Agreement of 2015 requires all countries to set emissions-reduction commitments. However, experts say that the pledges are not enough to prevent the global average temperature from rising 1.5 °C. This study adopts the Paris Agreement as a quasi-natural experiment and evaluates its policy intervention on environmental efficiency as well as GHG emissions in 162 countries from 1990 to 2020. We applied a global Malmquist-luenberger productivity (GML) index to measure global environmental efficiency. Moreover, we used seven major sources of GHG emissions to develop a comprehensive indicator of environmental degradation using the Principle Component Analysis (PCA). Results showed that developed countries experienced an increase in environmental efficiency, whereas developing and least developing countries (LDCs) showed decline. Technological progress was the key component of environmental efficiency in developed countries, while technical efficiency was the main indicator in developing countries and LDCs. Results of fuzzy regression discontinuity analysis documented that the policy intervention of the Paris Agreement was conducive to the global environmental efficiency by reducing the level of GHG emissions. However, the implementation of the Paris Agreement exerted heterogeneous effects on environmental efficiency with developed countries relatively experienced more profound effect. • The effect of Paris Agreement on global environmental efficiency is assessed. • We use a fuzzy regression discontinuity design. • The Paris Agreement has heterogeneous effects on global environmental efficiency. • Developed countries experienced a more profound policy effect.