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.