Carbon Emissions and the Business Cycle in Nigeria

Abstract

Investigating the behaviour of carbon dioxide emissions to different macroeconomic variables has become critical in the recent years in environmental policy. In fact, a number of studies have continued to analyse different possible determinants of carbon emissions. However, very little attention has been given to relating Real Business Cycles (RBCs) to carbon emissions in Nigeria. Thus, the main objectives of the study are; first, to document some stylised facts between the cyclical components of carbon emissions and Gross Domestic Product (GDP) including also the relationship with two major components of GDP that have been credited to be a major sources of emissions (agricultural sector and the industrial sector) through the use of the Hodrick-Prescott filter. Secondly, to investigate the response of emissions to real shocks using the Structural Vector Autoregressive (SVAR) approach. The study is able to find out that emissions are countercyclical to output, however, a pro-cyclical relationship is established with the agricultural and industrial sector. Real business cycle shocks are seen to have a positive effect on carbon emissions in Nigeria. The study, therefore, recommends the implementation of environmental policies targeted towards the agricultural and industrial sector given the pro-cyclical relationship obtained from the analysis.Keywords: Carbon emissions, Environmental policy, Business cyclesJEL Classifications: Q56, Q58, E32