Understanding the cyclical patterns of carbon dioxide emissions to mitigate climate change: Evidence from the QUAD countries

Abstract

Addressing the challenge of climate change requires a nuanced understanding of the factors driving CO2 emissions. While numerous studies have explored the relationship between economic variables and emissions, few have examined their cyclical interdependencies, and none as per our knowledge have conducted their study for the QUAD-the United States, India, Japan, and Australia. This gap motivated us to investigate whether discernible cyclical patterns exist in CO2 emissions, trade, GDP, and fossil fuel consumption in these nations. Utilizing the Hodrick-Prescott filter on annual data from 1970 to 2020, sourced from the World Bank and Our World in Data, this study uncovers country-specific procyclical trends in CO2 emissions. To scrutinize the dynamic interactions among these variables, we employ a Structural Vector Autoregression (SVAR) approach. Our empirical analysis reveals that a GDP shock elicits different contemporaneous responses in CO2 emissions across the QUAD countries: a positive response in India, Japan, and Australia, but a negative one in the United States. These findings emphasize the need for tailored strategies in managing CO2 emissions, akin to business cycle management, thereby underscoring the policy implications of our research.