Do Global CO2 Emissions from Fuel Consumption Exhibit Long Memory? A Fractional Integration Analysis

Abstract

In this paper we use an ARFIMA approach to measure the degree of fractional integration of aggregate world CO2 emissions and its five components – coal, oil, gas, cement, and gas flaring. We find that all variables are stationary and mean reverting, but exhibit long-term memory. Our results suggest that both coal and oil combustion emissions have the weakest degree of long-range dependence, while emissions from gas, and gas flaring have the strongest. With evidence of long memory, we conclude that transitory policy shocks are likely to have long-lasting effects, but not permanent effects. Accordingly, permanent effects on CO2 emissions require a more permanent policy stance. In this context, if one were to rely only on testing for stationarity and non-stationarity, one would likely conclude in favor of non-stationarity, and therefore that even transitory policy shocks have permanent effects. Our fractional integration analysis highlights that this is not the case