The relationship between temperature and CO 2 emissions: evidence from a short and very long dataset

David G. McMillan and Mark Wohar ()

Applied Economics, 2013, vol. 45, issue 26, 3683-3690

Abstract: The debate regarding rising temperatures and CO 2 emissions has attracted the attention of economists employing recent econometric techniques. This article extends the previous literature using a dataset that covers 800 000 years, as well as a shorter dataset, and examines the interaction between temperature and CO 2 emissions. Unit root tests reveal a difference between the two datasets. For the long dataset, all tests support the view that both temperature and CO 2 are stationary around a constant. For the short dataset, temperature exhibits trend-stationary behaviour, while CO 2 contains a unit root. This result is robust to nonlinear trends or trend breaks. Modelling the long dataset reveals that while contemporaneous CO 2 appears positive and significant in the temperature equation, including lags results in a joint effect that is near zero. This result is confirmed using a different lag structure and Vector Autoregressive (VAR) model. A Generalized Method of Moments (GMM) approach to account for endogeneity suggests an insignificant relationship. In sum, the key result from our analysis is that CO 2 has, at best, a weak relationship with temperature, while there is no evidence of trending when using a sufficiently long dataset. Thus, as a secondary result we highlight the danger of using a small sample in this context.

Date: 2013
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DOI: 10.1080/00036846.2012.729955

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