Working Paper: NBER ID: w4248
Authors: Douglas Holtz-Eakin; Thomas M. Selden
Abstract: Over the past decade, concern over potential global warming has focused attention on the emission of greenhouse gases into the atmosphere, and there is an active debate concerning the desirability of reducing emissions. At the heart of this debate is the future path of both greenhouse gas emissions and economic development among the nations. We use global panel data to estimate the relationship between per capita income and carbon dioxide emissions, and then use the estimated trajectories to forecast global emissions of CO2. The analysis yields four major results. First, the evidence suggests a diminishing marginal propensity to emit (MPE) CO2 as economies develop; a result masked in analyses that rely on cross-section data alone. Second, despite the diminishing MPE, our forecasts indicate that global emissions of CO2 will continue to grow at an annual rate of 1.8 percent. Third, continued growth stems from the fact that economic and population growth will be most rapid in the lower-income nations that have the highest MPE. For this reason, there will be an inevitable tension between policies to control greenhouse gas emissions and those toward the global distribution of income. Finally, our sensitivity analyses suggest that the pace of economic development does not dramatically alter the future annual or cumulative flow of CO2 emissions.
Keywords: CO2 emissions; economic growth; panel data; global warming
JEL Codes: Q54; O44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CO2 emissions (Q54) | per capita income (GDP) (D31) |
| per capita income (GDP) (D31) | CO2 emissions (L94) |
| variations in economic growth rates (O49) | cumulative flow of CO2 emissions (O44) |
| per capita income (GDP) (D31) | CO2 emissions growth (O44) |