What Can We Learn About Carbon-reducing Innovations From the Joint Dynamics of CO2 Emissions and GDP?

Soojin Jo and Lilia Karnizova

The Energy Journal, 2025, vol. 46, issue 4, 117-146

Abstract: Technological innovations targeting energy efficiency, carbon storage, and clean energy are often promoted as solutions to reduce emissions without sacrificing economic growth. However, theoretical studies offer conflicting views on the feasibility of this approach, and empirical assessments at the aggregate level are sparse. This paper contributes new evidence on the macroeconomic implications of carbon-reducing technological innovations. We analyze the joint dynamics of U.S. per capita emissions and GDP and identify a novel shock that lowers emissions without reducing economic output. This statistical shock is uncorrelated with past macroeconomic variables, energy prices, estimates of the leading macroeconomic shocks, and measures of environmental policy stringency. Our novel shock exhibits characteristics of an energy demand-reducing shock specific to the U.S. energy market, with pronounced effects concentrated in the residential and commercial sectors. This shock appears to be linked to improvements in energy efficiency, possibly stemming from changes in energy requirements for homes and buildings. These improvements may result from energy policies, occur exogenously, or reflect shifts in preferences for energy conservation. JEL Classification: E32, Q43, Q50, Q55

Keywords: CO2 emissions; carbon-reducing innovations; energy efficiency; sign restrictions (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:46:y:2025:i:4:p:117-146

DOI: 10.1177/01956574251322722

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