Decoupling economic growth from climate change: Unravelling the multi-dimensional dynamics of consumption-based emissions

Research indicates that some countries have achieved decoupling between economic activity and environmental damage, even considering consumption. We question whether emissions reductions from decoupling sufficiently mitigate climate change to meet Sustainable Development Goal 13: Climate Action. A novel approach is used to model latent information in GDP growth rates to predict country-level sustainable carbon emission rates. We propose a latent variable model for the growth rate of the CO₂ emissions-to-GDP ratio to understand the dynamics needed to achieve sustainable carbon thresholds for the Net Zero target. We document that while the unconditional average GDP per capita growth trends upward, the belief in its persistence is declining. The parameter linking consumption-based emissions with GDP per capita growth is statistically significant. It indicates a downward trend and confirms that economies can grow without a proportional increase in emissions as technology advances and people alter their behaviour. The findings highlight the importance of policies and technological innovation in decoupling economic growth from consumption emissions. Furthermore, the latent variable (which is easy to learn) persists and barely changes during the estimation period 2010 to 2018. We observe a decline between 2015 and 2018, despite remaining high overall.