Carbon emissions determinants and forecasting: Evidence from G6 countries

Area of Science:

• Environmental Economics
• Climate Change Policy
• Econometrics

Background:

• Growing concerns over carbon dioxide (CO2) emissions and their environmental impact.
• The ongoing debate surrounding climate change mitigation strategies, particularly following the Paris Agreement (COP21).
• The need to understand the drivers of CO2 emissions in major developed economies.

Purpose of the Study:

• To investigate the explanatory and forecasting power of economic growth, financial development, trade openness, and foreign direct investment (FDI) on CO2 emissions.
• To assess the validity of the Environmental Kuznets Curve hypothesis in the context of developed economies.
• To provide empirical evidence for policymakers aiming to curb carbon emissions.

Main Methods:

• Utilized time-series data for G-6 countries spanning from 1978 to 2014.
• Employed a range of econometric and empirical approaches to analyze the relationships.
• Augmented the primary model with energy consumption and oil price data for enhanced forecasting.

Main Results:

• Found weak evidence supporting the Environmental Kuznets Curve hypothesis.
• Identified economic growth, capital market expansion, and trade openness as significant drivers of carbon emissions.
• Observed a weak, negative impact of stock market capitalization and FDI on carbon emissions.
• Demonstrated strong forecasting performance, especially when including energy consumption and oil prices.

Conclusions:

• Economic growth, financial development, and trade openness are key factors influencing CO2 emissions in developed countries.
• The Environmental Kuznets Curve is not strongly supported in this context.
• Forecasting CO2 emissions can be significantly improved by incorporating energy consumption and oil price data.
• The findings have crucial policy implications for climate change mitigation efforts and commitments made post-Paris Agreement.