Economic Snapshot | Budget, Taxes, and Public Investment

The economy and greenhouse gas reduction

A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for July 4, 2001.

The economy and greenhouse gas reduction
Scientists agree that emissions of “greenhouse gases” pose a serious threat to the global climate. Certain levels of these gases exist naturally, trapping the sun’s heat and making the planet inhabitable. However, increased emissions of these gases also have the potential to trap too much heat, altering the climate in major and unpredictable ways.

Carbon, the most important greenhouse gas, is a direct byproduct of fossil fuel use. When the United States tentatively agreed in December 1997 to reduce greenhouse gas emissions 7% below 1990 levels by 2010, many worried that such a reduction in carbon emissions would require drastic cutbacks in energy use and thus wreak havoc on the U.S. economy.

Historically, economic output and carbon emissions have gone hand in hand. Lately, however, this link has begun to weaken.

The chart below shows the relationship between carbon emissions and gross domestic product (GDP) from the end of the last oil shortage in 1986 to the present, indexed to 1986 levels. As the chart shows, the link between carbon emissions and GDP first began to weaken in the early 1990s, and this has continued to deteriorate over the course of the decade. Preliminary estimates released by the Department of Energy this month show this trend continuing, with economic growth at 5.0% for 2000, while carbon emissions grew much more slowly at 2.7%.

GDP and carbon emission growth

The reason for this new trend is not yet clear. Some have claimed that warmer winters in recent years have reduced our heating requirements and thus our carbon emissions. The Department of Energy points to a return to cooler winters as one reason for the larger increase in emissions (emissions in 1999 increased by only 1.5%). These trends, along with a 14% decline in hydroelectric generation (which was largely offset by carbon-emitting fossil-based electricity), appear to be the main causes for increased emissions, along with the increase in GDP. Until more data is available, it is impossible to know what emissions might have looked like had hydroelectric generation not fallen so much.

Despite last year’s increase in emissions, it is clear that carbon emissions and economic well-being are not inextricably linked. Whatever other factors are behind this new trend, the last few years have clearly demonstrated that slowing carbon emissions — and preserving the environment in the process — does not have to come at the expense of a vital economy.

This week’s Snapshot by EPI economist James P. Barrett.

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