Assessing the E ects of Global Oil shocks on Carbon Emissions

Abstract

Innovations in the real price of oil triggered either by supply disruption or aggregate demand or even precautionary demand, have significant effects on macroeconomic aggregates and on environmental metrics including carbon emissions. It is with the purpose to assess the amplitude and mechanisms behind these effects that this study contributes. Thus, a surge in the price of oil, generally followed by a recession period implies a decrease with a lag of less than one year in energy consumption. This decrease reduces carbon emissions in the same period, revealing a negative relationship with oil price fluctuations. The significance of this causality relationship is mitigated in the long run by the continuous decrease in energy intensity and better energy efficiency as well as technological progress.