Dynamics of Japan’s industrial production and carbon emissions: causality, long-term trend and implications

This study investigates the causality and long-term trend concerning Japan’s industrial production and carbon dioxide (CO 2 ) emissions for the period 1990–2015 using the techniques of vector error correction (VEC) and Granger causality test. The results do not support the existence of Granger causality between Japan’s industrial production and CO 2 emissions in any direction. However, the VEC estimation reveals that an increase in Japan’s industrial production by 1% is associated with a 0.08% increase in the country’s CO 2 emission. It also reveals that any disequilibrium between Japan’s industrial production and CO 2 emission could take about 0.7 quarters for half of the error to be corrected for. The adjustment rate for Japan’s industrial production is found to be positive but is quite slow at the rate of 0.08% per year. This suggests that the country’s industrial sector is expected to implement stricter environmental regulations in the future.