Impact of International Environmental Agreements on Procyclicality of Carbon Dioxide Emissions and Business Cycles

Year 2022, , 1036 - 1058, 14.09.2022

Bige Kucukefe , Nilüfer Kaya Kanlı

https://doi.org/10.25295/fsecon.1072528

Abstract

The relationship between cyclic components of carbon dioxide (CO2) emissions and gross domestic product (GDP) growth is procyclical for a typical economy. Potential effects of a policy decision on the environment require policymakers to consider the impact of GDP growth on CO2 emissions for a country. This paper investigates the changing dynamics of procyclicality of CO2 emissions with respect to GDP growth following the Kyoto protocol which represents a strong commitment for a green economy by the industrialized countries. We compare two time periods (1970-2005 and 2006-2017) before and after the Kyoto Protocol by calculating the Pearson correlation coefficients and using linear regression models for 48 countries which produced 79% of the world total CO2 emissions in 2017. Our study finds that the procyclicality of the CO2 emissions and GDP growth decreased in 29 countries and increased in 19 countries in the period 2006-2017 following the Kyoto Protocol. We extract the cyclical components by Hodrick-Prescot filter. We also build VAR models and compute impulse response functions, which agree with the statistical findings.

Keywords

Kyoto, CO2, Business Cycles, PROCYCLICALITY, PROCYCLICALITY, Green economy, Climate Change

Uluslararası Çevresel Anlaşmaların İş Çevrimleri ve Karbondioksit Emilinin Döngüsel Bileşenleri Üzerindeki Etkisi

Abstract

Tipik bir ekonomideki Karbondioksit emisyonunun (CO2) ve Gayri safi yurtiçi hasıladaki (GSYIH) büyümenin döngüsel bileşenleri aynı yöndedir. Politika karar alıcıları, bir ekonomi politikası kararının çevre üzerindeki olası etkilerini hesaplarken, ülkedeki GSYIH’daki büyümenin CO2 emisyonu üzerindeki etkilerini dikkate alması gerekir. Bu makale, sanayileşmiş ülkeler tarafından yeşil bir ekonomi için güçlü bir taahhüdü temsil eden Kyoto protokolünü takiben GSYİH büyümesine göre CO2 emisyonlarının döngüselliğinin değişen dinamiklerini incelemektedir. Bu çalışmada 2017 yılında dünya toplam CO2 emisyonlarının %79'unu üreten 48 ülke için Pearson korelasyon katsayılarını hesaplayarak ve lineer regresyon modellerini kullanarak Kyoto Protokolü öncesi ve sonrası iki zaman dönemini (1970-2005 ve 2006-2017) karşılaştırılmaktadır. Çalışmamızda, Kyoto Protokolü sonrası 2006-2017 döneminde CO2 emisyonlarının ve GSYİH büyümesinin döngüselliğinin 29 ülkede azaldığını ve 19 ülkede arttığını ortaya koymaktadır. Döngüsel bileşenlerin ortaya çıkarılması için Hodrick-Prescot filtresi kullanılmıştır. Ayrıca, bu sonuçları elde edebilmek için istatistiksel bulgularla uyumlu olan VAR modelleri oluşturulmuş ve tepki fonksiyonları hesaplanmıştır.

Keywords

Kyoto Protokolü, Yeşil ekonomi, Konjonktür dalgalanmaları, CO2 emisyonu, İklim değişikliği

References

• Aakvik A, Tjøtta S. (2011) Do collective actions clear common air? the effect of international environmental protocols on sulphur emissions. Eur J Polit Econ. 2011;27:343–351.
• Aichele, R., Felbermayr, G. (2013). The effect of the Kyoto Protocol on carbon emissions. Journal of Policy Analysis and Management, 32(4), 731-757.
• Aldy J. E. (2006). “Per Capita Carbon Dioxide Emissions: Convergence or Divergence?,” Environ. Resour. Econ., vol. 33, no. 4, pp. 533–555
• Almer, C., & Winkler, R. (2017). Analyzing the effectiveness of international environmental policies: The case of the Kyoto Protocol. Journal of Environmental Economics and Management, 82, 125-151.
• Azami, S., Angazbani, F. (2020). CO2 response to business cycles: New evidence of the largest CO2-Emitting countries in Asia and the Middle East. Journal of Cleaner Production, 252, 119743.
• Bratberg, E., Tjøtta, S., & Øines, T. (2005). Do voluntary international environmental agreements work?. Journal of Environmental Economics and Management, 50(3), 583-597.
• Chan, Y. T. (2020). On the impacts of anticipated carbon policies: A dynamic stochastic general equilibrium model approach. Journal of Cleaner Production, 256, 120342.
• Christiano, L., Fitzgerald, T. (1999). The Band Pass Filter [Working Paper No. W7257].
• Doda B. (2014), “Evidence on business cycles and CO2 emissions,” J. Macroecon., vol. 40, pp. 214–227.
• Crippa, M., Guizzardi, D., Muntean, M., Schaaf, E., Solazzo, E., Monforti-Ferrario, F., Olivier, J.G.J., Vignati, E. (2020), “Fossil CO2 emissions of all world countries - 2020 Report”, EUR 30358 EN, Publications Office of the European Union, Luxembourg, 2020, ISBN 978-92-76-21515-8, doi:10.2760/143674, JRC121460.
• Freedman, D., Pisani, R., & Purves, R. (2007). Statistics (international student edition). Pisani, R. Purves, 4th Edn. WW Norton & Company, New York.
• Grunewald, N., Martínez-Zarzoso, I. (2011). Carbon dioxide emissions, economic growth and the impact of the Kyoto protocol. Working Paper for Spanish Ministry of Education and Science, 1–26 (accessed 10 December 2020).
• Grunewald, N., Martinez-Zarzoso, I. (2016). Did the Kyoto Protocol fail? An evaluation of the effect of the Kyoto Protocol on CO2 emissions.
• Heutel G. (2012). “How should environmental policy respond to business cycles? Optimal policy under persistent productivity shocks,” Rev. Econ. Dyn., vol. 15, no. 2, pp. 244–264, 2012.
• Hodrick R. J., Prescott E. C. (1997) “Postwar U.S. Business Cycles: An Empirical Investigation,” J. Money, Credit Bank., vol. 29, no. 1, p. 1
• Holtz-Eakin D., Selden T. M. (1995). “Stoking the fires? CO2 emissions and economic growth,” J. Public Econ., vol. 57, no. 1, pp. 85–101.
• Khan, H., Metaxoglou, K., Knittel, C. R., & Papineau, M. (2019). Carbon emissions and business cycles. Journal of Macroeconomics, 60, pp. 1-19.
• Kim, Y., Tanaka, K., & Matsuoka, S. (2012). The effectiveness of international environmental regime: The case of Convention on Long-range Transboundary Air Pollution. Environmental information science, 26, 189-194.
• Kim, Y., Tanaka, K., & Matsuoka, S. (2020). Environmental and economic effectiveness of the Kyoto Protocol. Plos one, 15(7), e0236299.
• Kydland F.E, Prescott, E.C. (1982) “Time to Build and Aggregate Fluctuations,” Econometrica, vol. 50, no. 6, pp. 1345–1370
• Kumazawa, R., Callaghan, M. S. (2012). The effect of the Kyoto Protocol on carbon dioxide emissions. Journal of Economics and Finance, 36(1), 201-210.
• Maamoun, N. (2019). The Kyoto protocol: Empirical evidence of a hidden success. Journal of Environmental Economics and Management, 95, 227-256.
• Levy, M. A. (1993). European acid rain: the power of tote-board diplomacy. Institutions for the earth: sources of effective international environmental protection, 75-132.
• Pilatowska M., Geise A., Wlodarczyk A. (2018). "Asymmetric Impact of Economic Growth on CO2 Emissions: Evidence from the EU Countries," 15th International Conference on the European Energy Market (EEM), Lodz, 2018, pp. 1-5, doi: 10.1109/EEM.2018.8469773.
• Ravn M. O., Uhlig H.(2002). “On adjusting the Hodrick-Prescott filter for the frequency of observations,” Review of Economics and Statistics, vol. 84, no. 2. pp. 371–376.
• Schmalensee R., Stoker T.M., Judson R. A.(1998). “World carbon dioxide emissions: 1950-2050”, Rev. Econ. Stat., vol. 80, pp. 15-27.
• Sheldon, T. L. (2017). Asymmetric effects of the business cycle on carbon dioxide emissions. Energy Economics, 61, 289-297.
• Sims C. A. (1980). “Macroeconomics and Reality,” Econometrica, vol. 48, no. 1, pp. 1–48, 1980.
• The Conference Board (2019), “The Conference Board Total Economy Database (April 2019)”, Technical Report, http://www.conference-board.org/data/economydatabase/
• Vollenweider J. (2013). The effectiveness of international environmental agreements. International Environmental Agreements: Politics, Law and Economics, 13(3), 343-367.
• Villoria-Sáez, P., Tam, V. W., del Río Merino, M., Arrebola, C. V., & Wang, X. (2016). Effectiveness of greenhouse-gas Emission Trading Schemes implementation: a review on legislations. Journal of cleaner production, 127, 49-58.
• Wagner M.(2008). “The carbon Kuznets curve: A cloudy picture emitted by bad econometrics?,” Resource and Energy Economics, vol. 30, no. 3, pp. 388–408.
• Wang, Q., Wang, S. (2019). Decoupling economic growth from carbon emissions growth in the United States: the role of research and development. Journal of Cleaner Production, 234, 702-713.