The Road after Paris: The Relationship between Climate Change Policy Stringency and Economic Growth at the Country Level

Abstract

Increased emissions of carbon dioxide and other greenhouse gases (GHG) have exacerbated the effects of climate change and led a steady rise in the average global temperature and intensified weather events. Countries sought to outline an aggressive agenda for combating climate change at the Conference of the Parties (COP 21) in Paris last year. In order to reach a common goal, countries released national action plans, known as Intended Nationally Determined Contributions (INDCs) for reducing GHG and especially CO2 emissions. However, a source of contention is the effect that limiting emissions might have on economic growth. In the context of the recently completed COP21, this paper examines the relationship between the stringency of climate policy implemented prior to 2015 and economic growth. Because INDCs were only introduced in the lead up to COP 21, this paper instead uses the Climate Change Performance Index (CCPI) to measure the stringency of countries’ climate policies from 2010 through 2014. My results show that an increase in the CCPI percentile score is associated with a small rise in a country’s GDP. Additionally, this analysis indicates that countries may experience higher increases in GDP for an improved CCPI ranking, depending on the country’s level of development. Therefore, my paper provides some suggestive evidence that countries may be able to implement increasingly stricter climate policies without hampering their economic growth.