Impacts of oil price shock on carbon emissions in India : An econometric analysis

Oil price shock has two interrelated impacts, GDP growth rate impact and energy impact, that induce a change in carbon emission level. This article seeks to find out, in the Indian context, whether the past oil shocks of the 1970s had any significant effect on carbon emission growth rate and then to simulate the impact on future GDP growth rate and carbon emissions if an oil price shock were to recur. Statistical diagnosis of the series confirms a structural break in the carbon emissions growth rate in 1975 following the 1973 oil shock. A Bayesian vector autoregressive model is developed with four variables: CO2 emission level, GDP, population, and oil price for the period 1970-1988. The carbon emissions and GDP for the period 1989-1995 are projected, given various simulated oil price scenarios. The oil price shock gives rise to a persistently high carbon emissions level with a time lag and an immediate negative impact on GDP that decreases within a short period.