The Relationship between Temperature and CO2 Emissions: Evidence from a Short and Very Long Dataset

Abstract

The debate regarding rising temperatures and CO2 emissions has attracted the attention of economists employing recent econometric techniques. This paper extends that literature through using a dataset that covers 800,000 years, as well as a shorter dataset, and examines the interaction between temperature and CO2 emissions. Unit root tests reveal a difference between the two datasets. For the long dataset, all tests support the view that both temperature and CO2 are stationary around a constant. For the short dataset, temperature exhibits trend-stationary behavior, while CO2 contains a unit root. This result is robust to non-linear trends or trend breaks. Modelling the long dataset reveals that while contemporaneous CO2 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 VAR model. A GMM approach to account for endogeneity suggests an insignificant relationship. In sum, the key result from our analysis is that CO2 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.

Keywords: Temperature, CO2, Stationarity, VAR

JEL Classification: C22, Q54