Assessing the Impact of COVID-19 on Global Fossil Fuel Consumption and Co2 Emissions

ISER DP No.1093 (2021)

42 Pages Posted: 28 Jul 2020 Last revised: 27 Jan 2021

See all articles by L. Vanessa Smith

L. Vanessa Smith

University of York - Department of Economics and Related Studies

Nori Tarui

University of Hawaii - Department of Economics

Takashi Yamagata

University of York - Department of Economics and Related Studies; Osaka University - Institute of Social and Economic Research

Date Written: July 2, 2020

Abstract

We assess the effect of the COVID-19 pandemic on global fossil fuel consumption and CO2 emissions over the two-year horizon 2020Q1-2021Q4. We apply a global vector autoregressive (GVAR) model, which captures complex spatial-temporal interdependencies across countries associated with the international propagation of economic impact due to the virus spread. The model makes use of a unique quarterly data set of coal, natural gas, and oil consumption, output, exchange rates and equity prices, including global fossil fuel prices for 32 major CO2 emitting countries in 1984-2019. We produce forecasts of coal, natural gas and oil consumption, conditional on GDP growth scenarios based on alternative IMF World Economic Outlook forecasts that were made before and after the outbreak. We also simulate the effect of a relative price change in fossil fuels, due to global scale carbon pricing, on consumption and output. Our results predict fossil fuel consumption and CO2 emissions to return to their pre-crisis levels, and even exceed them, within the two-year horizon despite the large reductions in the first quarter following the outbreak. Our forecasts anticipate more robust growth for emerging than for advanced economies. The model predicts recovery to the pre-crisis levels even if another wave of pandemic occurs within a year. Our counterfactual carbon pricing scenario indicates that an increase in coal prices is expected to have a smaller impact on GDP than on fossil fuel consumption. Thus, the COVID-19 pandemic would not provide countries with a strong reason to delay climate change mitigation efforts.

Keywords: COVID-19, CO2 emissions, fuel consumption, Global VAR (GVAR), conditional forecasts

JEL Classification: C33, O50, P18, Q41, Q43, Q47

Suggested Citation

Smith, L. Vanessa and Tarui, Nori and Yamagata, Takashi, Assessing the Impact of COVID-19 on Global Fossil Fuel Consumption and Co2 Emissions (July 2, 2020). ISER DP No.1093 (2021), Available at SSRN: https://ssrn.com/abstract=3649783 or http://dx.doi.org/10.2139/ssrn.3649783

L. Vanessa Smith (Contact Author)

University of York - Department of Economics and Related Studies ( email )

Heslington
University of York
York, YO10 5DD
United Kingdom

Nori Tarui

University of Hawaii - Department of Economics ( email )

Honolulu, HI 96822
United States

Takashi Yamagata

University of York - Department of Economics and Related Studies ( email )

Heslington
York, YO1 5DD
United Kingdom

Osaka University - Institute of Social and Economic Research ( email )

6-1, Mihogaoka
Suita, Osaka 567-0047
Japan

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