Business cycles, renewable energy, and short-term dynamics of carbon emissions: Evidence of asymmetric output gaps across advanced economies

This study examines the short-term dynamics of CO₂ emissions in advanced economies in relation to business cycles, energy intensity, the output gap, and the renewable energy transition. The analysis uses a balanced annual panel dataset covering 1991–2023, including G7 countries, Korea, Australia, Spain, the Netherlands, and Sweden. The study's main objective is to identify short-term emission determinants that are business cycle-sensitive and methodologically consistent, without relying on long-term equilibrium assumptions. Accordingly, because the panel lacks cointegration and shows mixed integration degrees, the analysis used short-term estimators: FE–Driscoll–Kraay, CCE-MG, and AMG. The findings show that per capita income growth and changes in energy intensity are key determinants of short-term emission growth. Increasing the share of renewable energy significantly reduces emissions growth. The output gap effect is asymmetric: expansion periods significantly affect emission dynamics, while contraction periods do not necessarily reduce emissions. The results show that emissions must be managed throughout business cycles and that renewable energy can play a stabilizing role in the short term.