Carbon emissions determinants and forecasting: Evidence from G6 countries

We examine the explanatory and forecasting power of economic growth, financial development, trade openness and FDI for CO2 emissions in major developed economies within the context of the debate on curbing CO2 emissions Post-Paris Agreement (COP21). Using data from G-6 countries from 1978 to 2014 and employing a set of empirical approaches, we find weak evidence of the Environmental Kuznets Curve, while economic growth, capital market expansion, and trade openness are found to be major drivers of carbon emissions. Carbon emissions are also weakly and negatively affected by stock market capitalization and FDI. Moreover, the forecasting performance is quite good, particularly by augmenting the model with energy consumption and oil prices. With respect to climate commitments, our empirical findings reveal important policy implications.

Automated summary

The study found that economic growth, capital market expansion, and trade openness are major drivers of carbon emissions in developed economies, while stock market capitalization and foreign direct investment have weak negative effects on carbon emissions. Additionally, enhancing the model with energy consumption and oil prices improves forecasting performance. The empirical findings have important policy implications for climate commitments.