Carbon dioxide emissions and economic growth: New evidence from GDP forecasting

This study aims to construct a monthly carbon emission index based on energy combustion in order to investigate its predictive power for the real GDP growth rate in the United States. Our objective is to evaluate and quantify the predictive performance and the potential impact of carbon-related factors on the GDP growth rate. We define the carbon emission index as the change rate index of monthly carbon dioxide emissions after accounting for seasonal effects, encompassing five sectors of energy consumption (residential, commercial, industrial, transportation, and electric power). Our findings demonstrate the robust and exceptional predictive capability of the newly developed carbon emission indices for GDP growth rates, particularly in relation to the transportation and industrial sectors. Moreover, in addition to popular macroeconomic variables, the carbon emission index contains incremental predictive information. The results obtained under diverse business cycle conditions and during the COVID-19 Pandemic further underscore the significance of our study. The findings of this paper provide more concise and efficient predictors for GDP growth rate forecasts.