Friday, April 24, 2015

Carbon dioxide emissions in the short run: The rate and sources of economic growth matter

Another paper in our ""trends and drivers" series that emerged from my IPCC work. We already released a paper on total greenhouse gas emissions in the long run that I coauthored with Luis Sanchez and a more methodological paper with Reyer Gerlagh, Paul Burke, and Zeba Anjum on fossil fuel CO2 and SO2 emissions in the long run.

The new paper coauthored with Paul Burke and Md. Shahiduzzaman focuses on what happens to fossil fuel carbon dioxide emissions over the business cycle time frame. This topic has received a bit of attention recently. We looked at the issue of what happened after the 2008-9 "Great Recession" in a short 2012 paper in Nature Climate Change that followed up on a paper by Glen Peters and others. Emissions grew very strongly in the recovery in 2010. Our new research shows that 2010 was an unusual year and usually emissions do not rise strongly in the recovery from a recession. In another 2012 paper in Nature Climate Change,, Richard York reported that the response of emissions to expansions and recessions is asymmetric. When the economy is growing the elasticity of emissions with respect to GDP is greater than when it is declining. Our paper tests York’s results and finds that asymmetry is only statistically significant when expansions and recessions of several years in length are considered.

That Gross World Product and CO2 emissions growth rates are tightly linked can be easily seen in the following graph. But there are many details to the story. For example, using country-level data we find that lagged effects are important: around 40% of the effect of economic growth on emissions isn’t realized until a subsequent year.

Some of the paper’s results are summarized in the graph below. We find that the average same-year emissions-income elasticity is about 0.5, but that this elasticity varies depending on the source of economic growth. Agricultural growth has relatively small emissions effects, whereas industrial growth is relatively emissions intensive. External shocks from export markets have quite large domestic emissions implications, presumably because they mostly affect industrial output.

Full abstract: This paper investigates the short-run effects of economic growth on carbon dioxide emissions from the combustion of fossil fuels and the manufacture of cement for 189 countries over the period 1961–2010. Contrary to what has previously been reported, we conclude that there is no strong evidence that the emissions-income elasticity is larger during individual years of economic expansion as compared to recession. Significant evidence of asymmetry emerges when effects over longer periods are considered. We find that economic growth tends to increase emissions not only in the same year, but also in subsequent years. Delayed effects – especially noticeable in the road transport sector – mean that emissions tend to grow more quickly after booms and more slowly after recessions. Emissions are more sensitive to fluctuations in industrial value-added than agricultural value-added, with services being an intermediate case. On the expenditure side, growth in consumption and in investment have similar implications for national emissions. External shocks have a relatively large emissions impact, and the short-run emissions-income elasticity does not appear to decline as incomes increase. Economic growth and emissions have been more tightly linked in fossil-fuel rich countries.

P.S. 4 May 2015
The paper was accepted for publication in Global Environmental Change. Yeah, we posted the working paper when we resubmitted the paper to the journal. Still, overall that was a very fast publication experience with the first journal we submitted to (on 18 December 2014) accepting the paper. This isn't always the case :)