Forecasting the future of carbon emissions by business confidence

The hazardous effects of climate change are expected to accelerate in the next five years, coinciding with an imminent worldwide economic downturn. How can the impact of this likely economic downturn on climate change be forecasted in order to take proactive measures? This study aims to investigate this research question by forecasting the influence of business confidence on carbon emissions through the mediation of industrial output and consumption of hydropower, wind, and solar energy. The investigation will focus on the three countries with the highest carbon emissions in their respective regions: the United States in North America, China in Asia, and Germany in Europe. Using a newly-introduced time-varying network analysis, the study reaches three major conclusions. First, a linear change in business confidence in the United States, Germany, and China has a lower effect (0.40, −0.35, and −0.95, respectively) on carbon emissions than a negative shock in business confidence (1.20, 0.85, and −0.80, respectively) and a positive shock in business confidence (1.05, −0.20, and 0.00, respectively) in the long run. Secondly, in the United States and Germany, a negative shock to business confidence induces a greater increase in carbon emissions (1.20 and 0.85, respectively) than a linear change (0.40 and −0.35, respectively) or a positive shock to business confidence (1.05 and −0.20, respectively). In China, a negative shock to business confidence diminishes carbon emissions at a rate 0.15 lower than a linear change in business confidence. Third, it is therefore expected that the imminent global economic downturn will result in a substantial increase in carbon emissions in the United States and Germany, and a modest increase in China. The study recommends proactive and (renewable) energy-specific policy options for all three countries to effectively mitigate climate change in conformity with these projections.