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Evidence on CO2 emissions and business cycles

Author

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  • Baran Doda
Abstract
CO2 emissions and GDP are positively correlated over the business cycle. Most climate change researchers would agree with the preceding intuitive statement despite the absence of a study that formally analyzes the relationship between emissions and GDP at business cyclefrequencies. The current paper attempts to address this gap in the literature by providing a simple, rigorous and consistent analysis of the relationship in a comprehensive cross country panel. To this end, I decompose the aggregate emissions and GDP series into their growth and cyclical components using the HP filter and focus on the cyclical components. Four robustfacts emerge from this analysis: i) Emissions are procyclical and cyclically more volatile than GDP in a typical country; ii) Cyclical volatility of emissions is negatively correlated with GDP per capita across countries; iii) Procyclicality of emissions is positively correlated with GDP per capita across countries; and iv) The composition of GDP is crucial for the business cycle properties of emissions but the relationship is complex. I undertake and report an extensive set of robustness checks which corroborate these findings. Finally, I propose some preliminarythoughts on the mechanisms that may be generating the data with these properties.

Suggested Citation

  • Baran Doda, 2012. "Evidence on CO2 emissions and business cycles," GRI Working Papers 78, Grantham Research Institute on Climate Change and the Environment.
    • Handle: RePEc:lsg:lsgwps:wp78
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    References listed on IDEAS

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    Cited by:

    1. Carolyn Fischer & Garth Heutel, 2013. "Environmental Macroeconomics: Environmental Policy, Business Cycles, and Directed Technical Change," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 197-210, June.
    2. Flues, Florens & Löschel, Andreas & Lutz, Benjamin Johannes & Schenker, Oliver, 2013. "Ups and downs: How economic growth affects policy interactions," ZEW Discussion Papers 13-066, ZEW - Leibniz Centre for European Economic Research.
    3. Baran Doda, 2013. "Emissions-GDP Relationship in Times of Growth and Decline," GRI Working Papers 116, Grantham Research Institute on Climate Change and the Environment.
    4. Khan, Hashmat & Metaxoglou, Konstantinos & Knittel, Christopher R. & Papineau, Maya, 2019. "Carbon emissions and business cycles," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 1-19.

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