Gail Cohen, João Tovar Jalles, Mr. Prakash Loungani, and Ricardo Marto
Recent discussions of the extent of decoupling between greenhouse gas (GHG) emissions and
real gross domestic product (GDP) provide mixed evidence and have generated much debate.
We show that to get a clear picture of decoupling it is important to distinguish cycles from
trends: there is an Environmental Okun's Law (a cyclical relationship between emissions and
real GDP) that often obscures the trend relationship between emissions and real GDP. We show
that, once the cyclical relationship is accounted for, the trends show evidence of decoupling in
richer nations—particularly in European countries, but not yet in emerging markets. The picture
changes somewhat, however, if we take into consideration the effects of international trade, that
is, if we distinguish between production-based and consumption-based emissions. Once we add
in their net emission transfers, the evidence for decoupling among the richer countries gets
weaker. The good news is that countries with underlying policy frameworks more supportive of
renewable energy and supportive of climate change tend to have greater decoupling between
trend emissions and trend GDP, and for both production- and consumption-based emissions.