The European business cycle and greenhouse gas emissions

Abstract

Our planet is engulfed on a major transformation. Greenhouse gases (GHG emissions) levels are at unprecedented heights, producing devastating effects on our climate and biodiversity. This study analyzes the relation between GHG emissions and the business cycle at the European level. This analysis is done using annual Gross Domestic Product (GDP) per capita as a proxy for the business cycle. With the help of the Hodrick Prescott (HP) filter, the trend from the cycle is deconstructed. The following results appear after analysing the statistics of the variables: first the GHG emissions cycle presents procyclicality with respect to the business cycle in most countries of the European Union. Second, the relative volatility of the emission cycle is greater than the volatility of GDP per capita in most economies. And finally, there is a decreasing correlation between procyclicality of emissions and GDP per capita.