International Trade and Consumption-Based CO2 Emission: A Cross Country Analysis

Abstract

This study analyzes the effect of a recently developed consumption-based carbon emissions database to investigate the impact of renewable energy consumption and global trade on consumption-based emissions of CO₂ for the period covering 1995-2019 for emerging economies E7 (India, Brazil, China, Indonesia, Russia, Turkey, and Mexico) and G7 (Canada, Japan, US, Germany, UK, France, and Italy) country groups. To find the short and long-run association between dependent variable i-e consumption-based CO2 emissions and Production based CO2 with exports, imports, GDP, industry value added and renewable energy consumption, cross-sectionally augmented ARDL is applied. Interestingly the results in the long run and short are identical for G7 and E7 in case of consumption based carbon emission where exports and renewable energy consumption negatively and significantly affects the consumption based CO2 in both long run and short run whereas imports, GDP and industry value positively and significantly affects the consumptions based CO2 emissions. Whereas in case of production based CO2 emissions the results obtained from the study are identical to the above-mentioned results both in long run and short run except for E7 imports which negatively affects the production based carbon emissions both in long and short run. Finally, the results the of DH granger causality test for E7 economies show that any policy to target exports, imports, GDP, and industry value added significantly changes CO₂ emissions. The findings recommend focus on importing environment-friendly production machinery by imposing tax on carbon intensive imports. Furthermore, one of the best possible solutions for reducing carbon emissions is to shift towards renewable energy.

Key words: Carbon dioxide, Emissions, international trade, Energy, Renewable energy