The Unassuming Economist

From a paper by Gail Cohen, Joao Tovar Jalles, Prakash Loungani, and Pietro Pizzuto:

“This paper provides cross-country evidence on the relationship between growth in CO₂ emissions and real GDP growth from 1960 to 2018. The focus is on distinguishing longer-run trends in this relationship from short-run cyclical fluctuations, and on documenting changes in these relationships over time. Using two filtering techniques for separating trend and cycle, we find that long-run trends show evidence of decoupling in richer nations—particularly in European countries—but not yet in developing economies, and that there is stronger evidence of decoupling over the 1990 to 2018 sub-period than over the earlier 1960 to 1989 sub-period. There is also a strong cyclical relationship between emissions and real GDP growth in both advanced and developing economies, and the strength of this relationship has not weakened much over time. The cyclical relationship is largely symmetric: emissions fall about as much during recessions as they rise during booms. The transition to a low-carbon economy will thus require continued progress not only in bringing down trend emissions, particularly in developing economies, but also in taming the increase in emissions that occurs during the boom phase of the business cycle.”

From a paper by Feng Wang and Mengdie Qu:

“Income inequality and energy poverty are critical obstacles to the worldwide low-carbon transformation and deeply affect human behavior. Applying a dynamic panel data model, this study investigates the effect of income inequality and energy poverty on global carbon emissions. We determine the effect of the interaction between income inequality and energy poverty on the global low-carbon transformation based on a panel data set of 193 countries from 1990 to 2019. A one standard deviation decrease in the Gini coefficient causes a 2.98 % decrease in carbon emissions per capita, with the median value of energy poverty. However, in poor countries where the proportion of population with access to electricity is less than 86.0 %, reducing income inequality will increase carbon emissions. The role of energy poverty on carbon emissions per capita is also affected by income inequality. When the Gini coefficient is lower than 0.461, increasing access to electricity will reduce carbon emissions. In contrast, when the Gini coefficient is higher than the critical value of 0.461, increased access to electricity will raise carbon emissions. These findings indicate a new strategy for advancing low-carbon transformation based on the interrelationship between income equality and energy poverty eradication.”

From a new paper by Nicholas Apergis and Hany Fahmy:

“This paper explores the link between geopolitical risks and energy prices crash risk. Studying energy price crashes is important given the sharp fall in oil prices in 2008 and 2014. The analysis focuses on three energy markets: natural gas, oil, and coal, while it employs two measures: the negative coefficient of skewness and the down-to-up volatility, to construct proxies for crash risks. The period of examination is January 2000 to December 2023, whereas that for coal is January 2010 to December 2023. The study employs a modified version of the smooth transition autoregressive model. The results show that, within the modelling framework, coal and oil crash risks are driven by the cyclical behavior of geopolitical acts, whereas natural gas crash risks by geopolitical threats. Causality tests confirm the prediction that geopolitical tensions cause crash risks in energy markets. The results also confirm that the “Economic Activity Channel” is only valid for energy markets driven by geopolitical threats. Energy market regulators should be concerned about crash risks, given that the energy supply shows cyclical boom and bust cycles in prices and production. Crash risks could also potentially cause a fall in investments required to enhance energy efficiency.”

From a new paper by John Asker, Allan Collard-Wexler, Charlotte De Canniere, Jan De Loecker and Christopher R. Knittel:

“Market power reduces equilibrium quantities and distorts production, typically causing welfare losses. However, as Buchanan (1969) noted, market power may mitigate overproduction from negative externalities. This paper examines this in the global oil market, where OPEC’s market power affects oil production and carbon intensity. We estimate that from 1970 to 2021, OPEC’s market power reduced emissions by over 67 GtCO2, equating to $4,073 billion in climate damages and 17.8% of the carbon budget needed for the 1.5◦ C Paris Agreement target. This environmental benefit outweighs the welfare loss from distorted production allocation.”

From a paper by Cheol-Keun Cho and Myunghyun Kim:

“We consider a proxy FAVAR (Factor-Augmented Vector Autoregression) model to analyze the impact of an oil supply news shock on the Korean economy. To identify an oil supply news shock, we use the variation in oil futures prices around OPEC production announcements as a proxy. Moreover, we include a factor that captures the common movement of many Korean macro variables such as various price indices and investment. The estimation results of the proxy FAVAR model show that an oil supply news shock increases the real oil price and the US CPI, and decreases world oil production and US GDP. As for Korean macro variables, GDP and net exports fall and CPI increases in response to the shock.”