Greenhouse Gas Emissions and GDP Growth: Assessing the Economic Impact of Climate Change and Renewable Energy Transitions

Abstract

Climate change represents a significant global challenge as rising Greenhouse Gas (GHG) emissions lead to increasing temperatures and shifts in precipitation patterns, directly impacting economic outcomes. This thesis examines the effects of Carbon Dioxide (CO₂) emissions on Gross Domestic Product (GDP) growth, as well as the economic response to transitions to renewable energy. The study utilizes fixed effects and random effects panel regressions to analyse data from 23 countries between 1990 and 2020. The Hausman test determined that the fixed effects models are the most suitable for this dataset. The results indicate that a 1°C increase in mean temperature reduces GDP growth by 0.46 percentage points, while there is not statistically enough evidence that mean precipitation affects GDP growth. Additionally, a 1 percentage point increase in renewable energy consumption results in a 0.091 percentage points decrease in GDP growth. These findings underscore the importance of adaptive policies that balance economic growth with environmental sustainability.