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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.
Gail Cohen, João Tovar Jalles, Mr. Prakash Loungani, and Ricardo Marto

Figure 1: Top 20 world GHG emitters Figure 2: Trends and cycles in some advanced economies Figure 3: Trends and cycles in some emerging economies Figure 4: Okun elasticities Figure 5: Okun elasticities in booms and contractions Figure 6: Time-varying Okun elasticities (CO 2 emissions) Figure 7: Kuznets elasticities Figure 8: Time-varying Okun estimates (production-based GHG emissions) Figure 9: Okun elasticities: Production vs. consumption Figure 10: Time-varying Okun estimates (consumption-based GHG emissions) Figure 11: Kuznets elasticities

Gail Cohen, João Tovar Jalles, Mr. Prakash Loungani, Ricardo Marto, and Gewei Wang

5. Trends and Cycles in the Central Region 6. Trends and Cycles in the Western Region 7. Kuznets Elasticities and Real GDP Per Capita across Chinese Provinces 8. China’s Provinces and U.S. States mean Kuznets Elasticities by Inter-Quintiles Ranges A1. Kuznets Residuals at the Aggregate Level A2. Kuznets Residuals at the Provincial Level A3. Okun Elasticities across Chinese Provinces A4. Kuznets Elasticities across Chinese Provinces A5. Elasticities and Economic Structure List of Tables 1. Contrasting Elasticities at the Aggregate Level 2

Gail Cohen, Joao Jalles, Mr. Prakash Loungani, and Ricardo Marto

as employment and unemployment, respond to cyclical movements in output, after accounting for the trend behavior in these variables. By analogy, we estimate an Environmental Okun’s Law which describes the cyclical relationship between emissions and output, after accounting for the trend behavior in the two. The ‘Okun elasticity’ is the percent change in emissions (relative to trend) in response to a 1 percent change in real GDP (relative to trend). Similarly, we refer to the responsiveness of the trend component of emissions to the trend components of output as the

Gail Cohen, João Tovar Jalles, Mr. Prakash Loungani, and Ricardo Marto

-use change and forestry.) Figure A.3: Elasticity of emissions growth with respect to GDP growth Note : Shaded bars for non-statistically significant coefficients. Figure A.4: Variance decomposition of emissions Figure A.5: Production-based Okun elasticities around the world Note: *** p <0.01, ** peO 05, * p <0.1, NS not statistically significant . Figure A.6: Production-based Kuznets elasticities around the world Note: *** p<0.01, ** peu 05, * p<0.1, NS not statistically significant . Figure A.7: Production-based Kuznets

Gail Cohen, Joao Jalles, Mr. Prakash Loungani, Ricardo Marto, Gewei Wang, and Mr. Chris Papageorgiou

results from provincial data hold out the hope that the relationship between emissions and GDP growth will weaken as China gets richer. We also provide evidence on the cyclical relationship between emissions and GDP growth, viz., on the Environmental Okun’s Law (EOL). The Okun elasticity—the response of the cyclical component of emissions to the cyclical component of GDP—ranges from 0.35 to 0.65, depending on the filtering method used and on whether production-based or consumption-based emissions are used. We find evidence of asymmetry in EOL: the Okun elasticity is

Gail Cohen, João Tovar Jalles, Mr. Prakash Loungani, Ricardo Marto, and Gewei Wang
We provide a comprehensive analysis of the relationship between greenhouse gas (GHG) emissions and GDP in China using both aggregate and provincial data. The Kuznets elasticity is about 0.6 for China, higher than that in advanced countries but below that of major emerging markets. The elasticity is somewhat lower for consumption-based emissions than for production-based emissions, providing mild evidence consistent with the “pollution haven” hypothesis. The Kuznets elasticity is much lower for the last three decades than for the three previous decades, suggesting a longer-term trend toward decoupling as China has become richer. Further evidence of this comes from provincial data: richer provinces tend to have smaller Kuznets elasticities than poorer ones. In addition to the trend relationship, we find that the Environmental Okun's Law holds in China.
Gail Cohen, João Tovar Jalles, Mr. Prakash Loungani, Ricardo Marto, and Gewei Wang

Appendix Figures Figure A.1. Kuznets Residuals at the Aggregate Level Figure A.2:. Kuznets Residuals at the Provincial Level Figure A.3. Okun Elasticities across Chinese Provinces Figure A.4. Kuznets Elasticities across Chinese Provinces Figure A.5. Elasticities and Economic Structure Appendix Tables Table B.1. Augmented Dickey-Fuller Test for Unit Root (1) (2) (3) (4) (5) COUNTRY Z ( t ) ɛ ^ t − 1 τ Δ