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 article extends the previous literature 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 behaviour, while CO₂ contains a unit root. This result is robust to nonlinear 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 Vector Autoregressive (VAR) model. A Generalized Method of Moments (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.