latamen
The CO₂lumnist: Country emissions dynamics - peeling the (carb)onion

The CO₂lumnist: Country emissions dynamics - peeling the (carb)onion

05-08-2021 | Column
Investors rely on data to make decisions on climate strategy, but emissions by countries can be hard to calculate. In the second of a new series of columns taking a more light-hearted look at the issue, Robeco data scientist Thijs Markwat says it’s much like peeling onions – it’s multi-layered (and it can make your eyes water).
  • Thijs Markwat
    Thijs
    Markwat
    Researcher

In my previous role as a quantitative allocation researcher a very well-respected colleague taught me two appealing lessons, which can be applied to a wide range of problems and challenges. These lessons were:

  • By peeling the layers of an onion you can see what it really consists of.
  • You cannot eat an elephant at once, but only one bite at a time.

Both rules are very helpful and important but combining them makes them even more powerful. Today is about the onion and I will peel the layers of country carbon emissions

The carbon emissions of a country can be represented as follows: CO2=POP*GDP/POP*(CO2)/GDP

If you look at that formula you will see that POP (population) and GDP cancel out and an CO2 identity remains. Therefore, when you first look at it, you might question the usefulness of this formula. However, the three terms on the right side are a powerful tool in explaining and predicting country emissions.

The first term is the population and evidently is positively related to carbon emissions. The second term is called affluence and proxies the country’s wealth as GDP per capita. In general, higher economic activity results in higher emissions. The last term is the state of green technologies in a country, which is measured by the emissions per unit GDP. Obviously, the better the technological state the lower the emissions. 

In 2019, the aggregated emissions in the US were around 5100 megatons of CO2, while China emitted around 11,500 megatons. Together they account for almost half of all global emissions. In the figure below I have decomposed the cumulative percentual change since 1990 in CO2 emissions for these two counties.1

Stay informed on Sustainable Investing with monthly mail updates
Stay informed on Sustainable Investing with monthly mail updates
Subscribe

The total emissions of the US in 2019 are only 1% higher than in 1990. The population growth (+29%) and affluence (+49%) are offset by advances in greener technologies (-77%). If we look at China a different picture emerges. There, the carbon emissions have increased by 380%, mainly driven by the country becoming richer (+624%).

Emissions particularly increased between 2000 and 2010, as the rise due to wealth growth was not yet compensated by technological advances. Only since 2010 have the greener technological advances become more effective, slowing down the growth rate of emissions.

Predicting future emissions can be a difficult task. Breaking down emissions in these components might be helpful. The population for instance can be predicted reasonably accurately, the possible availability of certain green technologies can be taken into account, and the wealth growth of some developing countries cannot last forever.

So, by predicting the different components an indication of the future growth of the country emissions can be obtained.

1I used a logarithmic mean divisia index approach to attribute the total change in emissions to the components

Logo

Important information

The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor or the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). Furthermore, Robeco Institutional Asset Management B.V. (Robeco) does not provide investment advisory services, or hold itself out as providing investment advisory services, in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act).

This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act who are professional investors, or professional fiduciaries representing such non-U.S. Person investors. By clicking “I Agree” on our website disclaimer and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information on behalf of yourself and any underlying investment advisory client, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are, or are a discretionary investment adviser representing, a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States and (v) you are, or are a discretionary investment adviser representing, a professional non-retail investor. Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States and so that it shall not be deemed to constitute Robeco holding itself out generally to the public in the U.S. as an investment adviser. Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction. We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.

This website has been carefully prepared by Robeco. The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use by the general public.

I Disagree