De­cou­pling eco­nomic growth from CO2 emis­sions in the world

The main con­clu­sion from this Pol­icy Brief is that re­duc­ing CO2 emis­sions is not nec­es­sar­ily based on a de­cline in eco­nomic growth, but can be achieved by im­prov­ing en­ergy ef­fi­ciency and by re­duc­ing car­bon in­ten­sity.

Financial Nigeria Magazine - - Contents - By Rim Ber­a­hab

The pro­gres­sive warming of Earth sug­gests an im­por­tant dan­ger for fu­ture pop­u­la­tions. As sta­bi­liz­ing the level of green­house gases (GHGs) in the at­mos­phere be­comes in­ad­e­quate, there is now talk of re­duc­ing this level while pre­serv­ing sus­tain­able eco­nomic growth rates. This Pol­icy Brief deals with the is­sue of the econ­omy's car­bon in­ten­sity through a de­cou­pling in­di­ca­tor, de­fined as the ratio be­tween the change in car­bon diox­ide (CO2) emis­sions and Gross Do­mes­tic Prod­uct (GDP). It also high­lights some re­mark­able trends emerg­ing from the ex­pe­ri­ence of dif­fer­ent coun­tries.

Glob­ally, CO2 emis­sions were sta­ble for the third con­sec­u­tive year de­spite strong eco­nomic growth, which sug­gests a de­cline in the car­bon in­ten­sity of the econ­omy. How­ever, the study of the de­cou­pling in­di­ca­tor has shown that dis­par­i­ties ex­ist be­tween re­gions. Africa, and Morocco in par­tic­u­lar, shows mixed re­sults in­so­far as there is a low de­gree of de­cou­pling – or dis­so­ci­a­tion – be­tween CO2 emis­sions and GDP.


The tran­si­tion to low-car­bon eco­nomic growth is es­sen­tial for the fea­si­bil­ity of a suc­cess­ful global cli­mate strat­egy. While the Paris agree­ment has worked to re­duce GHG emis­sions and keep the global tem­per­a­ture be­low 2 de­grees Cel­sius, it is un­de­ni­able that all economies, both de­vel­oped and de­vel­op­ing, want to main­tain their eco­nomic growth at sus­tain­able rates. In cir­cum­stances where CO2 emis­sions are closely as­so­ci­ated with GDP, the ob­jec­tive of eco­nomic growth seems to be in con­flict with that of emis­sions re­duc­tions. How­ever, eco­nomic lit­er­a­ture and con­crete ex­am­ples from some coun­tries show that it is pos­si­ble to rec­on­cile a low-car­bon strat­egy with eco­nomic de­vel­op­ment.

When look­ing at the sum to­tal of over­all CO2 emis­sions through­out his­tory, it's no­tice­able that they have steadily in­creased since the In­dus­trial Revo­lu­tion. In fact, they have al­most dou­bled glob­ally be­tween 1975 and 2016 and have recorded average an­nual growth rates of 1.4% dur­ing the 1990-2000 pe­riod and 2.5% dur­ing the 2000-2010 pe­riod. How­ever, a new trend has be­gun in re­cent years as seen in 2016 when global CO2 emis­sions were sta­ble for the third con­sec­u­tive year (Fig­ure 1-a) de­spite strong eco­nomic growth (Fig­ure 1 -b).

This new trend can be ex­plained by growth in the pro­duc­tion of re­new­able en­ergy, from coal to nat­u­ral gas, im­prove­ments in en­ergy ef­fi­ciency, and struc­tural changes in the global econ­omy. Although it is still early to make a cat­e­gor­i­cal as­sess­ment, this seems to lay the foun­da­tion for de­cou­pling emis­sions from eco­nomic ac­tiv­ity, which would be es­sen­tial for pol­icy mak­ers as it rep­re­sents the only way to de­car­bonize the global econ­omy while en­sur­ing its ef­fi­ciency.

De­cou­pling in­di­ca­tor: a rel­e­vant in­stru­ment for an eco­log­i­cal tran­si­tion

The de­cou­pling in­di­ca­tor il­lus­trates the dif­fer­ent growth tra­jec­to­ries of en­vi­ron­men­tal and eco­nomic vari­ables. In­tro­duced in the 2000s, it is based on the same idea found in the the­ory of the En­vi­ron­men­tal Kuznets Curve (EKC). It states that the more a coun­try's wealth in­creases, the more in­di­vid­u­als opt for en­vi­ron­men­tal qual­ity once their ba­sic needs are met. The de­cou­pling in­di­ca­tor thus al­lows econ­o­mists and de­ci­sion­mak­ers to mea­sure the cor­re­la­tion be­tween the eco­nomic and en­vi­ron­men­tal spheres and to ex­plain the mech­a­nisms of junc­tion be­tween them.

From an em­pir­i­cal point of view, the de­cou­pling in­di­ca­tor is de­fined as the ratio be­tween the vari­a­tion of en­vi­ron­men­tal vari­ables, such as CO2 emis­sions and the vari­a­tion of eco­nomic vari­ables, such as real GDP, ei­ther in ab­so­lute or per capita form. Gen­er­ally speak­ing, de­cou­pling is said to oc­cur when the rate of growth of CO2 emis­sions be­comes less rapid than that of GDP over a given pe­riod.

How­ever, the de­cou­pling in­di­ca­tor is char­ac­ter­ized by sim­plic­ity, which can some­times be mis­lead­ing. In­deed, most pres­sures on the en­vi­ron­ment are the re­sult of mul­ti­ple fac­tors and can­not be un­der­stood with­out com­plex mod­el­ling tools. A mis­in­ter­pre­ta­tion could thus lead to an at­ti­tude of mis­guided ex­cess of con­fi­dence that would be harm­ful to the en­vi­ron­ment.

Mixed re­sults in dif­fer­ent re­gions and coun­tries of the world

The de­cou­pling in­di­ca­tor has been cal­cu­lated in this sec­tion for dif­fer­ent re­gions of the world, us­ing the EDGAR and World Bank data­bases. The re­sults point to mixed re­sults be­tween OECD and nonOECD re­gions.

1. En­cour­ag­ing re­sults for OECD re­gions

On the ba­sis of this anal­y­sis, a strong preva­lence for de­cou­pling in OECD coun­tries is de­duced (Ta­ble 1). The pe­ri­ods of strong de­cou­pling in­di­cate that per capita CO2 emis­sions have de­clined de­spite marked eco­nomic growth, in­di­cat­ing dis­so­ci­a­tion be­tween emis­sions and GDP.

His­tor­i­cally, Europe's OECD coun­tries rep­re­sent the re­gion with the best de­cou­pling per­for­mance. This pos­i­tive trend is ex­plained by en­vi­ron­men­tal en­ergy poli­cies and by the good per­for­mance of coun­tries such as Swe­den, which is in­deed a ref­er­ence in terms of de­car­boniz­ing the econ­omy. Be­tween 2000 and 2015, Swe­den's to­tal CO2 emis­sions per capita de­creased by 34.4%, while over­all GDP per capita grew by about 23.4% (Fig­ure 2). In ad­di­tion, fos­sil fu­els ac­counted for 27% of its en­ergy mix in 2015, which is very low in com­par­i­son with most OECD coun­tries, while nu­clear and re­new­able en­ergy ac­counted for 73%.

Swe­den's suc­cess is mainly based on in­no­va­tion in clean and en­vi­ron­men­tally friendly tech­nolo­gies and on pi­o­neer­ing en­vi­ron­men­tal poli­cies. In­deed, car­bon pric­ing, through the im­po­si­tion of CO2 emis­sions, has been the main in­stru­ment for re­duc­ing the con­sump­tion of fos­sil fu­els over the last 30 years. The Swedish car­bon tax is one of the high­est in the world, es­ti­mated at $126 / tCO2 in 2016. More­over, due to a low level of fos­sil fu­els in the en­ergy mix, CO2 emis­sions per unit of GDP have de­creased by over 30% since 2000. The in­ten­sity of Swedish CO2 emis­sions - de­fined as CO2 emis­sions per dol­lar of GDP - is thus one of the low­est in the OECD.

An­other rel­e­vant ex­am­ple is the OECD Amer­i­cas re­gion, where Canada mainly drives the strong de­cou­pling (Fig­ure 2). CO2 emis­sions per capita thus achieved neg­a­tive rates of change es­ti­mated at -3.7%, -7.5% and -3.2% dur­ing the pe­ri­ods 20002005, 2005-2010 and 2010-2015 re­spec­tively, while GDP per capita in­creased by 8.1%, 0.5% and 5.6% over th­ese same pe­ri­ods. Canada's pos­i­tive cli­mate change out­comes are based on a sec­tor­wide ap­proach to re­duc­ing GHG emis­sions in key sec­tors of the econ­omy, such as elec­tric­ity and trans­port, while con­tin­u­ing to cre­ate jobs and stim­u­late eco­nomic growth.

To this end, the Cana­dian elec­tric­ity sec­tor is al­ready one of the least pol­lut­ing of the G7, since 79% of elec­tric­ity is pro­duced from non-emit­ting sources – one of which is wind power, which has seen a sharp in­crease of 20% over the past five years. In ad­di­tion, in 2012, the Cana­dian gov­ern­ment passed leg­is­la­tion pro­hibit­ing the con­struc­tion of new con­ven­tional coal­fired power plants. It also in­tro­duced a phase-out sched­ule for ex­ist­ing power plants and adopted nat­u­ral gas as the stan­dard for new power plants.

Fur­ther­more, the tech­no­log­i­cal and struc­tural changes Canada has ex­pe­ri­enced have led to in­creased en­ergy ef­fi­ciency and the growth of ser­vice in­dus­tries with low CO2 emis­sions. As a re­sult, emis­sion in­ten­sity de­clined by an average of 1.3% per year be­tween 1990 and 2012 and it is ex­pected that this trend will con­tinue to de­cline by 2020.

2. Mixed re­sults for Africa, Morocco and


Africa has mixed re­sults given that low or even re­ces­sive de­cou­pling has been ob­served (Ta­ble 3), which is not an ideal

sce­nario for de­car­boniz­ing growth but is not a cat­a­strophic sce­nario ei­ther. As a mat­ter of fact, the evo­lu­tion of CO2 emis­sions and GDP per capita shows that their tra­jec­to­ries have in­deed sep­a­rated since 1998. How­ever, 2008 marks a turn­ing point as the evo­lu­tion of GDP per capita has re­versed, while emis­sions con­tin­ued to in­crease un­til 2014 when they sta­bi­lized, ex­cept for the slight de­crease ob­served be­tween 2010 and 2011 (Fig­ure 3). In the case of Morocco, like the rest of the African con­ti­nent, the re­sults show that de­cou­pling has in­deed taken place but is weak. In fact, CO2 emis­sions per capita con­tinue to grow, but at a slower pace than per capita GDP (Ta­ble 3). The King­dom's to­tal en­ergy con­sump­tion con­tin­ues to be dom­i­nated by fos­sil fu­els, no­tably oil and coal (81% in 2014), fol­lowed by nat­u­ral gas (14.2%) and re­new­able en­ergy (4.8%).

There­fore, in or­der to re­in­force this de­cou­pling, Morocco has adopted a strat­egy of re­silience to cli­mate change, the aim of which is to en­sure a rapid trans­for­ma­tion to­wards a low-car­bon and ef­fi­cient econ­omy. This strat­egy is based on two main el­e­ments. First, Morocco has com­mit­ted to re­duc­ing its GHG emis­sions by 42% by 2030 com­pared to the "busi­ness as usual" (BAU) sce­nario. It also ad­vo­cates strength­en­ing the use of nat­u­ral gas and re­new­able en­ergy, in par­tic­u­lar for the gen­er­a­tion of elec­tric­ity – the largest pol­luter sec­tor in the King­dom – and the di­ver­si­fi­ca­tion of its en­ergy mix in favour of re­new­ables. It thus ex­pects to at­tain over 50% of in­stalled elec­tri­cal power from re­new­able en­ergy by 2030.

Se­condly, Morocco plans to achieve en­ergy sav­ings through en­ergy ef­fi­ciency mea­sures aimed at re­duc­ing en­ergy con­sump­tion by 15% by 2030 by tar­get­ing the in­dus­trial, trans­port and con­struc­tion sec­tors. Th­ese mea­sures in­clude re­duc­ing lo­gis­tics costs, wise use of raw ma­te­ri­als in the in­dus­trial sec­tor, waste re­cy­cling and re­cov­ery, re­struc­tur­ing the agri­cul­tural sec­tor, in­cor­po­rat­ing the cli­mate change di­men­sion, etc.

Out­side the African con­ti­nent, China is an­other rel­e­vant ex­am­ple. The Chi­nese econ­omy surged in the early 2000s, lead­ing to in­creased fos­sil fuel con­sump­tion and there­fore large quan­ti­ties of CO2 emis­sions, which ex­plains the ex­ten­sive cou­pling ob­served dur­ing the 2000-2005 pe­riod (Ta­ble 3). On the other hand, over the past two decades, China has lim­ited its coal con­sump­tion, which de­clined by al­most 4% in 2015. As a re­sult, CO2 emis­sions per capita fell by 1.1%. De­cou­pling is there­fore still weak.

In ad­di­tion, since de­cou­pling emis­sions be­came a pri­or­ity, the Chi­nese gov­ern­ment has set up a set of en­ergy and en­vi­ron­men­tal tar­gets through its 13th Na­tional Five-Year Plan (2016-2020). China is there­fore fore­cast­ing a re­duc­tion in en­ergy in­ten­sity and car­bon in­ten­sity of around 15% and 18% by 2020, re­spec­tively, com­bined with an in­crease in eco­nomic growth of 6.5% per year (Fig­ure 6). This would en­able China to achieve a 48% re­duc­tion in emis­sions be­tween 2005 and 2020.

Fur­ther­more, the de­car­boniza­tion of the en­ergy mix is be­com­ing in­creas­ingly wide­spread. China ac­counted for 36% of in­ter­na­tional in­vest­ments in re­new­able en­er­gies in 2015. Its five-year plan there­fore fore­sees the con­tin­u­a­tion of th­ese in­vest­ments in or­der to in­crease the share of non-fos­sil en­er­gies to 15% by 2020 in the en­ergy con­sump­tion to­tal com­pared to 7% in 2000 and 12% in 2016.

3. Dis­turb­ing re­sults for the Mid­dle East

The Mid­dle East re­gion is show­ing some dis­turb­ing trends, as it shows a cou­pling dur­ing the 2005-2010 pe­riod and a re­ces­sive de­cou­pling dur­ing the 2010-2015 pe­riod (Fig­ure 5-b). In ad­di­tion, in­di­ca­tors for CO2 emis­sions and GDP per capita are char­ac­ter­ized by large fluc­tu­a­tions (Fig­ure 5-a). In 2015, they were at 16 for per capita

CO2 emis­sions and -36 for per capita GDP, in­di­cat­ing that emis­sions in­creased while GDP de­creased in 2015.

An anal­y­sis of this re­gion's en­ergy pro­file of­fers some an­swers jus­ti­fy­ing th­ese re­sults. In 2016, en­ergy con­sump­tion in the Mid­dle East in­creased by 2.6%. This re­gion alone con­sumes 6.7% of the en­ergy on a global scale. Although its con­sump­tion has be­come dom­i­nated by nat­u­ral gas (51.5%), the share of oil re­mains sig­nif­i­cant (46.7%). More­over, the ma­jor­ity of th­ese coun­tries are large pro­duc­ers and ex­porters of oil. In ad­di­tion, the share of fos­sil fu­els in pri­mary en­ergy in the Mid­dle East in 2016 ac­counted for 99.2%. It is the high­est in the world and well above the world average of 85.5%. There is no doubt then that the Mid­dle East faces ma­jor en­ergy chal­lenges as con­ven­tional fos­sil re­sources di­min­ish and its pop­u­la­tion con­tin­ues to grow.


Over­all, the main con­clu­sion from this Pol­icy Brief is that re­duc­ing CO2 emis­sions is not nec­es­sar­ily based on a de­cline in eco­nomic growth, but can be achieved by im­prov­ing en­ergy ef­fi­ciency and by re­duc­ing car­bon in­ten­sity.

Some rec­om­men­da­tions can be for­mu­lated to strengthen ef­forts to de­cou­ple CO2 emis­sions from eco­nomic growth, par­tic­u­larly for de­vel­op­ing coun­tries. In gen­eral, one of the most ef­fec­tive ap­proaches is to pro­vide eco­nomic in­cen­tives for busi­nesses and house­holds. Th­ese can take the form of an emis­sion tax, a ceil­ing on the to­tal an­nual emis­sions level, or a sys­tem of trad­able emis­sion quo­tas. It should be noted, how­ever, that th­ese ap­proaches should be adapted to the speci­fici­ties of each coun­try.

The African con­ti­nent in par­tic­u­lar has vast re­new­able re­sources that pro­vide it with great po­ten­tial for de­car­bonized sus­tain­able growth. The chal­lenge now lies in strength­en­ing pol­icy and leg­isla­tive mea­sures in or­der to con­sol­i­date the share of re­new­able en­er­gies in its en­ergy mix, while over­com­ing the high costs of re­new­able en­er­gies and com­pe­ti­tion from con­ven­tional fos­sil fu­els, which are still present in the con­ti­nent. The op­ti­mal use of its re­new­able po­ten­tial will thus bring sig­nif­i­cant so­cio-eco­nomic ben­e­fits to poverty al­le­vi­a­tion, eco­nomic growth, em­ploy­ment and en­vi­ron­men­tal pro­tec­tion.

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