SECTORAL DECOMPOSITION OF THE DECOUPLING FACTOR IN THE EUROPEAN UNION

Climate change and weather extremes have become the fact of life for people in many parts of the world. This global problem has forced governments to pay more attention to environmental protection, but without jeopardizing economic growth. In environmental economics, achieving economic growth with reduced pressure on the environment is called decoupling. This process can be shown by the decoupling factor. It is usually calculated by the division of two variables. The numerator is the measurement of pollution (usually by greenhouse gas emissions), and it is divided by the variable that measures economic activity (either by GDP or GVA). The decoupling factor can be calculated for each country, and international comparison can show how countries stand in terms of pollution in relation to their respective economic strength. Furthermore, by analyzing the decoupling factor over time, it is possible to see its direction. It is desirable that the factor is decreasing because that means that either pollution (the numerator) is decreasing, or in the other case, it is increasing but more slowly than economic activity (the denominator). For all countries of the European Union, decoupling factor has been decreasing in the last twenty years. For less developed member states (mainly Eastern European countries), it is decreasing faster. Besides countries, the decoupling factor can also be calculated for economic sectors. This represents the central part of this paper. In this case, the decoupling factor is calculated by dividing a variable that measures the pollution of a specific sector with a variable that measures that sector's economic output (gross value added). Sectoral analysis of the decoupling factor provides insight into which sectors contribute the most to pollution, primarily in relation to their economic strength. Also, temporal analysis of the decoupling factor reveals in which sectors it increased and in which it decreased over time.