CO2 intensity of GDP, energy productivity and environmental degradation in Iceland: evidence from novel Fourier based estimators

Abstract

ABSTRACT Iceland aims to achieve carbon neutrality by 2040 and to cut carbon emissions by 40% by 2030 under the Paris Agreement. Iceland’s major policy instrument for reaching its emissions reduction and carbon neutrality objectives is a Climate Action Plan, which was amended in 2020 and included 48 initiatives. Therefore, the research investigates the impact of carbon intensity, economic growth, globalization, and energy productivity on consumption-based emissions in Iceland from 1995Q1 to 2019Q4. The Fourier Autoregressive Distributed Lag Model (FARDL) is used in this study to investigate the ramifications of a long-term association. Long-run estimations demonstrate that Iceland’s environmental quality is deteriorating due to carbon intensity and economic development. It implies that increasing the carbon intensity and economic growth is environmentally damaging. Furthermore, economic expansion has a significant impact on environmental sustainability. Increased energy production also decreases consumption-based emissions, which contributes significantly to Iceland’s sustainable environment. Globalization has a positive and significant influence. A 1% rise in globalization, in particular, enhances consumption-based emissions over time. The finding is crucial for policy preferences and might be used to implement robust policy measures to address environmental challenges.