Impact of Oil Price on CO2 Emissions

Summary

Sweden has signed multiple international environmental agreements, such as the Paris Agreement, and is therefore committed to reducing its emissions. One way to do so is through economic policy instruments. In this paper, the relationship between oil price changes and CO2 emissions is being studied. Data from 1980 to 2021 on Sweden has been collected and used to conduct a regression analysis, with a linear regression model. With the emissions as the dependent variable, control variables have been included as well since other factors besides oil prices contribute to CO2 emissions. Some of these are the GDP per capita and the effect of the COVID 19-pandemic. By examining this relationship, the aim is to see how effective price changes on oil are in contributing to reducing CO2 emissions. This can be important to study for future policy-making, as it can hopefully help identify the effectiveness of economic instruments and incentives for reducing emissions from oil combustion. The study showed an immediate significant and positive relationship between oil prices and emissions just when the oil price increases. After a longer time period, a significant negative effect of oil price increases and CO2 emissions was found. This means that 12 or more months after the price increase, there is a decrease in CO2 emissions.