Persistence of CO2 emissions in G7 countries: a different outlook from wavelet-based linear and nonlinear unit root tests

Abstract

Today, environmental issues such as the inability to control rising carbon dioxide (CO₂) emissions, climate change, and global warming are on the agenda of policy-makers and various organizations. The Paris Agreement, signed in 2016 and rejoined by the USA in 2021, emphasizes the need for decarbonization and the importance of CO₂ reduction for sustainable development. Since environmental policies can have long-term effects on variables containing unit roots, it is important for policy-makers to understand the stochastic properties of CO₂ emissions. In this context, we propose a new wavelet-based nonlinear unit root test to investigate the stationary properties of the per capita CO₂ emissions for the G7 countries during the period 1868-2014. To compare results, we use eight different tests that take into account both the time-frequency domain difference, the nonlinear-linear difference, and smooth structural breaks. The results of the different linear tests illustrate that CO₂ emissions have a unit root in the frequency domain for all countries. Moreover, nonlinear unit root test results indicate that the CO₂ emissions for the UK are stationary in the time domain. Overall, we consider frequency domain test results, and conclude that CO₂ emission policies have permanent effects for G7 countries. Based on the findings, we recommend that the G7 countries take long-term measures to reduce CO₂ emissions, such as joint actions to improve environmental quality through fossil fuel conservation, renewable energy improvement, and environmental awareness programs.

Keywords: CO2 emissions; Fourier function; Frequency domain; G7 countries; Wavelet unit root test.