CO2 emissions

Carbon emissions are one type of greenhouse gas emission that happens when carbon dioxide enters the air after a human activity or process. Greenhouse gas emissions come from six main categories which includes: Transportation, Electricity production, Industry, Commercial and Residential, Agriculture, Land Use and Forestry. However, the bulk of carbon emissions comes from the biggest category of all: transportation.

Fig 1. Total U.S. Greenhouse Gas Emissions by Economic Sector [1]

Carbon emissions affect the planet significantly, as they are the greenhouse gas with the highest levels of emissions in the atmosphere. This, of course, causes global warming and ultimately, climate change.

How do carbon emissions affect the planet? For starters, NASA says that rising levels of carbon dioxide in the atmosphere will both hurt and help crops. While increased carbon dioxide levels can “increase water-use efficiency in crops” and also “mitigate yield losses due to climate change,” these levels can also create imbalances in nitrogen and carbon, minimizing crops’ necessary nutrients like iron, zinc, and protein.

Perhaps the most important way that carbon emissions affect the planet is by causing climate change. As the average global temperature warms, our climate inherently changes — it warms. This warming causes extreme weather events like tropical storms, wildfires, severe droughts and heat waves. And while an increase in carbon in the air can, in some ways, positively affect plants and crops, if the climate changes the lands and causes drought or other weather events that crops and plants are unable to survive in, it can be detrimental to crop yields. The same problem holds for animals, as well; as climate change alters our environment and natural habitats, different indigenous species take a hit. Some species may disappear altogether, while others might thrive and overtake others.

Carbon emissions directly affect humans, too, causing more respiratory disease from an increase of smog and air pollution. Not to mention that if carbon emissions eradicate certain animal species, destroy crop yields and lands, humans will also see the repercussions of those effects as well.[2]

(Source: https://edition.cnn.com)

1. Convergence in carbon dioxide (CO2) emission

Convergence occurs when countries with higher initial levels of emissions have a lower emission growth rate than countries with lower initial levels of emissions and over time reach a unique steady state or steady state(s) reflective of the countries’ characteristics. The presence of convergence in emissions suggests that countries are more likely to endorse emission allocation strategies as the concern for relocation of emissions-intensive industries and resource transfer may be of less importance. On the other hand, the absence of convergence, or even divergence in emissions, suggests that the relocation of emissions-intensive industries or a substantial resource transfer through international trading of carbon allowances will circumvent such mitigation strategies[3].

Convergence in carbon dioxide (CO2) emission rates per capita between countries is essential in climate change debates. Although the consequences of climate change are uncertain, most scientists have stated that emissions of CO2 and other greenhouse gases cause global warming. Emission estimates provide critical input for assessing the potential impact of climate change and the cost of emissions reduction (Aldy, 2006). Economic measures to reduce CO2 emissions are costly (Lanne & Liski, 2016). Because of the Framework Convention on Climate Change in 1992 and the Kyoto Protocol in 1997, many countries have realized the need to reduce greenhouse gas emissions to minimize the global impact on the environment and the associated climate change (Payne, 2020).

III. Convergence of CO2 Emissions in OECD countries[4]

The impacts of climate change are being felt worldwide, and high levels of carbon dioxide in the atmosphere shift the Earth’s climate. If carbon dioxide emissions continue to grow at their current pace, the world will pass the threshold beyond which global warming becomes catastrophic and irreversible. Among the various aspects of CO2 emissions, one of the main issues is the convergence behavior of CO2 emissions. To what extent do the per capita emissions of different countries tend to draw closer together over time? The underlying motivation of this issue is fairness associated with the distribution of per capita emissions. For example, Zhou and Wang (2016) explain the reasoning. Countries with lower per capita emissions would expect those with higher per capita emissions to shoulder more burden to mitigate and reduce emissions. Only then the distribution of emissions can be improved, and the allocation of emissions can be less of a concern if there is convergence in emissions. Otherwise, the situation could demand more relocation of emissions and international trading of carbon allowances. Thus, convergence implies improvement for a fair and equitable emission allocation.

These ideas have important policy implications, so they are a popular research topic. Payne, Lee, and Islam (2021) discuss previous studies on convergence in per-capita emissions. Those studies center on CO2. It is the primary source of greenhouse gases that trap heat in the atmosphere. According to a recent report published by the US Environmental Protection Agency (EPA, 2021), CO2 accounted for 80 percent of all US greenhouse gas emissions in 2019 increasing from 65% in 2014 – as measured in “CO2 equivalents”. Methane (CH4), nitrous oxide (N2O), and fluorinated gases contribute to the remaining bulk. The ratio is not substantially different globally, with CO2 emissions accounting for 76% of total greenhouse gas emissions.

Literature, Motivation, and Methodology

Payne et al. (2021) provide an extensive literature survey on previous studies regarding CO2 emissions. One strand of studies concentrated on the determinants of carbon emissions; another focused on the convergence of carbon emissions. Bekun et al. (2019) investigated the relationship between carbon emissions, resource rent, and renewable/nonrenewable energy for selected 16 European Union countries covering 1996-2014. The results indicate that nonrenewable energy consumption and economic growth increase carbon emissions while renewable energy decreases.

In this line of studies, there is a consensus that economic growth and carbon emissions are correlated. Economic growth is the main culprit in emitting carbon emissions. However, later studies showed that the relationship between economic growth and carbon emissions is not necessarily monotonically increasing. Inspired by the pioneering study of Kuznets (1955), the environmental Kuznets curve (EKC) hypothesis postulates an inverted U-shaped relationship between income and environmental degradation (Churchill et al., 2018; Dogan, & Seker, 2016; Narayan & Narayan, 2010; Leal, & Marques, 2020, among others). According to the EKC hypothesis, in the early stages of economic development, as a country’s income grows, environmental degradation will initially rise and then falls as income continues to rise.

Whether a variable in a set of countries converges by following a similar path or diverges by having different paths have important implications. Therefore, various econometric approaches have been undertaken to test convergence in emissions, income, energy, economic freedom, and other variables. Testing on stochastic convergence has been most popular to examine whether shocks to a variable of interest are temporary. The unit root, stationarity, and cointegration tests are popular instruments to examine such behavior. One can examine the null hypothesis for each country that a variable diverges from the average of all countries. Failure to reject the unit root null hypothesis indicates evidence against convergence. Divergence implies no tendency for a variable to return to the average following a shock.

Data and Estimation Results

The study takes the CO2 per capita data by country from the GitHub repository, which presents gross carbon emission data from the Global Carbon Project of the Future Earth, they select data from 1960 to 2018 for 30 OECD countries: the initial 24 OECD countries (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States) and the six countries that joined OECD between 1994 and 2000 (Czech Republic, Hungary, Mexico, Poland, Slovak Republic, and South Korea). New eight member countries after 2000 are excluded. As required for stochastic convergence analysis, they use relative emissions, that is, the log of the ratio between each country’s annual per-capita emissions and the corresponding OECD average given as below:

Table 1 gives descriptive statistics of these relative variables. Of the 30 countries examined, 19 have per capita carbon emissions less than the average, while the remaining 11 have per capita emissions bigger than the average. Luxembourg has the highest elative mean by a large margin, followed by the United States, while Turkey has the lowest value. South Korea has the highest standard deviation of relative emissions, and the United States has the lowest value.

Table 1. Summary Statistics for CO2 Emissions

(Source: Convergence of CO2 emissions in OECD countries, Junsoo Leea,*, Ali G. Yucel^b,c, Md Towhidul Islam^a)

Figure 2a plots combined cross sections of carbon emissions measured in metric tons per capita for 30 OECD countries. Throughout the time span analyzed, it is impossible to define a common pattern for emissions. However, for most countries, per capita emissions tended to increase until the 1990s and decreased. The decreasing trend in emissions can be explained by global awareness and commitment to the environment, such as the formation of the IPCC in 1988, the UN Conference on Environment and Development in 1992, and the Kyoto Protocol in 1997. Among the sample countries, Luxembourg is the biggest per capita carbon emitter for almost the entire period. However, this result is mainly due to the country’s low population. Yet, per capita CO2 emissions in Luxembourg have dropped substantially over the last 50 years. The US ranks second in terms of per capita emissions. From 1960, emissions in the USA increased until the first oil shock in 1973, fluctuated until the late 1990s, and decreased. The burning of fossil fuels (coal, natural gas, oil) used for energy and electricity is the main reason for USA’s high per capita carbon emissions. Australia and Canada are among the biggest per capita emitters, along with the US and Luxembourg.

Fig 2.a. Plots of Emission of CO2 (Metric ton per capita)

(Source: Convergence of CO2 emissions in OECD countries, Junsoo Leea,*, Ali G. Yucel^b,c, Md Towhidul Islam^a)

Fig 2.b. Plots of Relative Emission of CO2 (theo mức độ)

(Source: Convergence of CO2 emissions in OECD countries, Junsoo Leea,*, Ali G. Yucel^b,c, Md Towhidul Islam^a)

 

Figure 2b plots the evolution of relative per capita carbon emissions. A visual inspection of relative emissions indicates that cross-country differences in per capita emissions have been narrowing. However, this narrowing does not provide clear evidence in favor of a convergence pattern among the OECD countries.

Figure 2c depicts relative carbon emissions in their first differences.

Fig 2.c. Plots of relative emissions of CO2 (in the first differences)

(Source: Convergence of CO2 emissions in OECD countries, Junsoo Leea,*, Ali G. Yucel^b,c, Md Towhidul Islam^a)

As previously mentioned, the motivation for this paper is to jointly account for cross-correlation and structural changes when testing for convergence in CO2 emissions. There are some compelling reasons for such cross-correlations in real-world CO2 emissions data. The co-development and widespread use of similar production technologies across the developed world is one important factor. Besides, the environmental Kuznets curve also contributes to such correlations. Furthermore, a high degree of synchronization and integration between national and international business cycles could result in cross-correlations in economic growth and CO2 emissions, among other things. Countries experience common shocks that drive co-movements in these variables. For example, the widespread decline in emissions in most countries after 2005 may be attributed to a series of worldwide associated financial crises.

The important finding from the results that draws attention is that convergence only exists for relatively less carbon-emitter countries. Leading contributors to carbon emissions, such as the USA, Japan, and Germany, are responsible for the global emissions of 15%, 3%, and 2%, respectively. Overall, their sample of 30 OECD countries is not on track for a decarbonized world as opposed to the commitment to a net zero emission target following the adoption of the Paris Agreement and the release of IPCC’s Special Report on Global Warming of 1.5°C.

 

Conclusion and Policy Recommendations

This paper has examined the convergence behavior of per capita CO2 emissions in 30 OECD countries while accounting for the effects of structural changes and cross-correlations jointly within a factor structure. They are the generalized tests that extend the LM test of Lee and Strazicich (2003) in a factor structure by adopting the PANIC procedure of Bai and Ng (2004). Then, they applied the new tests to find evidence in favor of or against the convergence of per capita carbon dioxide emissions. These results have immediate and concrete policy implications. As there is little evidence of convergence in emissions, the distribution of emissions must be improved. It must be recognized that effectively changing the allocation of emissions remains a concern. Also, the lack of convergence in carbon emissions points to a need for a common action to combat carbon emissions.

(Sources/Usage: Public Domain)

Intergovernmental Panel on Climate Change (2022) states that limiting global warming to 1.5°C is impossible without immediate and deep reductions across all sectors. The report goes on to detail that global temperature will only stabilize when CO2 emissions reach net zero. Therefore, carbon taxes should be applied to carbon-intensive industries to provide a path toward carbon convergence among the OECD countries. Most countries, including the biggest emitters, have not levied a carbon tax. Pricing the carbon based on the amount of emissions will be a fair and powerful tool for limiting emissions. In addition, as Puertas and Marti (2021) state, eco-innovation significantly impacts carbon emissions and should be promoted.

More environmental regulation in OECD countries is probably required to foster the environmentally efficient use of energy, moving, for example, toward cleaner sources of energy. Strong political action is needed to circumvent larger and more divergent per capita carbon emissions in the future. Moreover, the countries should also expand renewable resources utilisation. Investment in renewable resources is feasible alternatives for these nations.

International coordination is required for the reduction of environmental indicators for a convergent country. Joint efforts among countries should be  prioritize in the process of controlling environmental pollution. These countries need to develop international cooperation mechanisms such as joint clean environmental projects to reduce the relevant environmental index

Finally, despite the binding environmental agreements, the lack of convergence in carbon emissions points to a need for more aggressive, comprehensive, and collaborative policies.

 

[1] https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions

[2] https://www.greenmatters.com/p/how-do-carbon-emissions-affect-environment#:~:text=The%20amount%20of%20carbon%20emissions,side%20effects%20that%20are%20dangerous

[3] https://www.frontiersin.org/journals/energy-research/articles/10.3389/fenrg.2019.00158/full

[4] Convergence of CO2 emissions in OECD countries Junsoo Leea,*, Ali G. Yucelb,c, Md Towhidul Islama