Breaking the Carbon Chains: A Global Study of Decoupling and Economic Growth through Individual Decomposition Effects

Abstract

This study investigates the drivers of decoupling for predominantly OECD and EU countries from 2000 to 2014. Identifying these drivers and characteristics for countries who see economic growth and carbon emission reduction is important to inform countries with decoupling how to continue this trend based on existing policies and goals, and it informs countries without decoupling whether to continue to prioritize the scale of economic growth or the reduction in emissions. A thorough dataset is created using 15 years of value-added data from the World Input-Output Database along with emissions and population data across sectors over time. A carbon decomposition analysis is performed on the final dataset, breaking down emissions and GDP growth in a country into the scale, composition, and technique effects. This study finds that in countries with decoupling, the technique effect is strong enough to counteract the scale effect, and in countries without decoupling, this is not the case, despite the technique effect still reducing overall emissions. In both cases, the composition effect has an ambiguous effect. The study also finds that decoupling countries tend to be high-income countries, while a majority of countries without decoupling are low-income, large, developing countries, though a fixed effects regression does not attribute significance to this notion empirically. For countries with decoupling, these findings encourage the usage of carbon caps, taxes, and investment in innovative, green technologies, and for countries without decoupling, these findings suggest that economic growth with an increase of emissions in the short term is the path forward in order to invest and implement efficient technologies and regressive policy measures in the future.