The Effect of the Global Financial Crisis on the Emission of Carbon Dioxide

The effects of the global financial crisis 2008-2009 (GFC) were widespread around the globe and discussed extensively. A sphere that was affected but did not get the attention it deserves is the environment. Especially carbon dioxide, the major greenhouse gas, fluctuates with economic situations and is highly correlated with GDP and energy consumption. In this study the effect of the global financial crisis on carbon dioxide emissions is examined by literature and empirical research. A panel dataset for 55 countries over 39 years is used to make OLS estimations for fixed effects models. The fixed effects allow for individual heterogeneity of the countries. The aim is to detect the effect of the GFC using a crisis dummy. This effect is not found to be significant. There are several explanations. There is large regional diversity in carbon dioxide emissions, GDP and their relationship. The emerging economies have growing carbon dioxide emissions and are counteracting the reductions in emissions from developed countries. These reductions were only partly caused by policies and investments. The rest of the reductions can be explained by the reduced economic activity due to the GFC. This is a positive effect for environmental quality, although overruled largely by the emissions from emerging economies. The crisis also reduced incentives for environmental investments, which should have a negative effect on environmental quality. The exact consequences of this will only be observable in the long term. Other explanations for the small impact of the GFC on emissions are the fast recovery of energy prices and widespread government support to recover from the crisis.