New Research Highlights Trade-Off between Emissions Reductions and Economic Growth

Posted February 9, 2018

Political wrangling over international agreements to curb climate change tends to be divisive. Just look at the reactions to the recent decision by President Donald Trump to withdraw from the Paris Agreement.

On one side, the proponents of international agreements to limit greenhouse gas emissions, such as the 2015 Paris Agreement or the 1997 Kyoto Protocol, say climate change is among the most important issues of our time, and international agreements are crucial to helping stop it. On the other, opponents say advanced economies are expected to shoulder too much of the burden, leaving their economies stunted.

New research from the Georgia Institute of Technology’s School of Economics argues, essentially, that both sides have a point.

In a study published in the February issue of the journal Sustainability, master's student Eren Cifci and economics professor Matthew E. Oliver analyzed the effects of the Kyoto Protocol on the signatories’ greenhouse gas, or GHG, emissions and their per capita gross domestic product growth — a standard measure used to compare the relative growth of national economies.

Their findings?

“The Kyoto Protocol was successful in terms of decreasing greenhouse gas emissions, but has also had economic impacts, slowing down per capita GDP growth,” Cifci said.

Economic trade-offs are “relevant and important” considerations, researchers say.

Specifically, he and Oliver found that greenhouse gas emissions by developed countries that signed onto the agreement fell after the Kyoto Protocol became binding in 2005. Those reductions, measured relative to the emissions of developing countries in the sample, went down by an annual average per country of around 1 million metric tons of CO2 equivalent, a standard measure of atmospheric warming potential.

They also estimated that, in comparison to developing countries, the Protocol’s impacts on those more economically advanced nations may have caused their per capita gross domestic product growth to decline by an average of between 1 and 2 percentage points annually in the years following 2005.

That translates into lost income growth of about $600 per person per year, Cifci and Oliver estimated.

“These results suggest that the trade-off between GHG emissions reductions via participation in an international climate agreement and short-run economic growth is a relevant and important consideration in the design and implementation of such agreements, and that global leadership involves significant economic costs about which political constituencies have a right to be concerned,” Cifci and Oliver wrote in the paper.

Findings surprised co-author.

While other academic researchers have looked at these issues in isolation, the analysis by Cifci and Oliver is the first —  using this particular data and method — to examine the impacts of the Kyoto Protocol on both greenhouse gas emissions and economic growth in tandem.

Oliver — whose school is part of the Ivan Allen College of Liberal Arts at Georgia Tech — said he was surprised by the findings.

“To be honest, I didn’t expect to find an impact on economic growth,” he said, adding that he initially thought that the requirements imposed by the Kyoto deal would not have been sufficiently burdensome to create a significant economic impact.

“But that’s not what the data are telling us,” he said.

Cifci and Oliver warned against putting too much stock in the specific numbers, however. They described their results as more suggestive than definitive.

“There are all sorts of different things that can affect GPD per capita growth. We can only control for so many of them, making the specific impact of the Kyoto Protocol difficult to pin down with a high level of accuracy,” Oliver said.

He also said the short-term nature of the analysis means it is possible that not enough time has passed to fully evaluate the effects of climate change deals on economies in the long run. In other words, growth impacts from such agreements may be only transitory, whereas climate benefits are likely to be longer lasting.

Not an argument against climate change prevention efforts

They also warn against seeing the findings as an argument against efforts to combat climate change.

Oliver — who believes strongly that a coordinated global effort can and will help to reduce greenhouse gas emissions to sustainable levels — argues that the findings instead highlight the need for partisans on both sides to consider the viewpoints and concerns of the other in finding solutions to climate change.

“There will always be those who value short-term economic growth over long-term climate benefits. Until you acknowledge that they have a right to feel that way and that statistically, empirically, they are not necessarily wrong, you are never going to get anywhere in terms of convincing them to see your side,” he said.

Cifci believes the trade-off is probably more complex than we think. Ultimately, he points out, the difficulty lies in designing climate policies that not only protect the environment, but also help nations achieve their economic development goals.

The study, Re-assessing the Links between GHG Emissions, Economic Growth, and the UNFCCC: A Difference-in-Differences Approach, is published in the February edition of the journal Sustainability.