Efficiency Test of Forecasts: an illustration for Carbon Emission

World Economies are facing numerous challenges concurrently. Among them one of most pertinent is global warming. Almost all the countries are victims of climate changes. Therefore, several economic mechanisms in environmental policy have been adopted to combat the distasteful impacts of climate change. The implication of environmental policies for clean energy environment in a country can be accessed via several channels. Forecast analysis is one of them, it reveals the forthcoming arrangement. The direction of the forecast trend discloses the current as well as potential outlook, indicating the intensity of policy brunt. The study evaluated the forecast and their accuracy to ensure the performance of forecast. Carbon emission in Gulf countries and their forecast are used as a case study. ARIMA model is used to obtain the forecast. Afterward, to evaluate the forecast performance, the study utilized the different efficiency criterion defined by Nordhaus (1987). By following the several efficiency test study found consistent and efficient forecasts. These performance tests ascertain the reliability and accuracy of the trend followed by forecasts. Accurate Forecasts direct better policy formation and management decision with buoyancy. Moreover, earlier policy resolution becomes more lucid.