The sources of growth of the Canadian business sector's CO2 emissions, 1990-1996

Findings of inverted-U relationships between economic growth and certain pollutants have generated considerable controversy yet, relatively little is known about the factors underlying these relationships. Canadian CO2 emissions per unit of output have begun to decline, mirroring trajectories found using data across countries and time. This paper examines the pattern of CO2 emissions per unit of output between 1990 and 1996, decomposing the changes into an energy intensity effect, an energy mix effect and a carbon content effect. Our contribution constitutes a case study of the relative importance of these factors for a country on the downward-sloping portion of its CO2 emission-output trajectories. Overall, our results indicate that the combination of the energy intensity and the substitution effect contributed to the decline in CO2 emissions per unit of output. While the substitution effect was emissions reducing, it was not by itself sufficient to generate a major downward-sloping emission-output trajectory.