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CO2 emissions and GDP growth still too closely correlated, Fitch warns

Reducing the carbon intensity of energy will be critical to keeping the Paris climate goals alive, report's authors argue.

Breaking the link between carbon emissions and GDP growth will be “crucial” in achieving climate goals, according to a new report by Fitch.

The credit rating agency noted that carbon dioxide emissions are still “closely linked” to global GDP growth, meaning economic activity remains a direct contributor to global warming despite gains in energy efficiency.

Global emissions fell during the height of the pandemic in 2020 but grew in line with the recovery in world GDP in 2021. Reducing the carbon intensity of energy will be critical to keeping the Paris climate goals alive, the report’s authors said.

According to Fitch’s historic research, the carbon intensity of GDP has fallen by 45 percent since 1965 but most of this was driven by energy efficiency, which has improved by a third. However, since the late 1990s the carbon intensity of energy has improved only very modestly, in part due to China’s rapidly increasing share of global energy consumption and its high use of coal resources.

Increased reliance on coal as an alternative to high gas prices was also a factor behind the estimated 1.4 percent increase in the carbon intensity of energy in 2021, the report noted.

The credit rating agency also looked at projected improvements in the carbon intensity of GDP in the International Energy Agency’s “Net zero by 2050” scenario. Under this scenario, energy efficiency is assumed to increase annually by 4 percent over the next 20 years. Fitch argues that this would be a sharp acceleration and implies modest outright falls in energy consumption each year on average.

However, the implied improvements in the carbon intensity of energy in this scenario are much more dramatic, with annual gains of 4 percent between 2020 and 2030 and more than 11 percent a year in 2030 to 2040. Accelerating the reduction of the carbon intensity of energy will be a priority as strategies aimed at energy efficiency would not be sufficient in reaching net-zero alignment, according to the report.

GDP is expected to continue rising at around 2.5 percent to 3 percent over the next two decades, which constitutes a direct challenge in meeting net-zero emissions targets, Fitch warned.