Emissions GDP relationship in times of growth and decline
Produced as part of the Governments, markets and climate change mitigation CCCEP research programme theme
This empirical paper focuses on the relationship between changes in GDP and CO2 emissions as a country’s economy moves through periods of growth and decline. Using a comprehensive panel, we document substantial heterogeneity in the relationship across countries.
Specifically, countries can be classified into one of the following three groups. Group D (for decline) includes countries where the emissions growth rate is more strongly associated with the GDP growth rate in periods of GDP decline than in periods of GDP growth. Group G (for growth) includes countries where the degree of association is stronger in periods of GDP growth. Finally, in group S (for symmetrical) it is not possible to reject the hypothesis that the relationship is the same for growth and decline.
According to a simple count criterion, approximately a third of the countries in the sample fall into each group. Notably, China and the US, currently the world’s largest emitters by a substantial margin, are in group D.
These results have potentially important consequences for long-term emissions projections. They also suggest that macroeconomic stabilization policies may have adverse emissions consequences by limiting the cleansing effect of periods in which GDP declines.