Do common shocks drive changes in aggregate emissions intensity?

François Lafond, Xiyu Ren () and Fulvia Marotta ()
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Xiyu Ren: Institute for New Economic Thinking at the Oxford Martin School, University of Oxford
Fulvia Marotta: Smith School of Enterprise and the Environment, University of Oxford

INET Oxford Working Papers from Institute for New Economic Thinking at the Oxford Martin School, University of Oxford

Abstract: In the UK, aggregate emissions intensity has declined by about a factor of two over the last three decades. Prior research attributes most of this decline to reductions within industries rather than shifts in the composition of economic activity. This paper investigates whether such within industry progress primarily reflects industry-specific factors or common forces operating across industries. Using a newly constructed panel of UK industry-level GHG emissions and gross value added for 1990–2022, we estimate a block-level dynamic factor model that decomposes changes in emissions intensity into global, block-level, and idiosyncratic components. We find that industry-specific factors account for the majority of variation in emissions intensity changes, though common shocks, either global or at the level of groups of industries, play a smaller but non-negligible role. We further show how patterns of co-movement partly reflect the way that emissions are recorded at the activity level and allocated to industries, a feature with implications for interpreting industry-level decarbonization dynamics.

Keywords: Emissions intensity; Sectoral heterogeneity; Dynamic factor models; Climate policy; Environmental macroeconomics; Directed technical change (search for similar items in EconPapers)
JEL-codes: C32 C38 E32 O33 Q54 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2025-07
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