The relationship between growth in GDP and CO2 has loosened; it needs to be cut completely

Since the dawn of the industrial age, fossil fuels have been a key enabler of economic development, providing the fuel that generated most of the world’s electricity, powering automobiles, ships and aircraft, and fuelling industrial activity. As a result, economic growth has been closely tied to a rise in greenhouse gas emissions through most of modern economic history.

This relationship, however, is changing. With steady improvements in the energy intensity of economic growth (meaning that less energy is required to produce an additional unit of global GDP) and, more recently, a dramatic rise in clean energy deployment, there has been a growing divergence between GDP growth and CO2 emissions in most economies around the world.

In advanced economies, continued growth in GDP has been accompanied by a peak in CO2 emissions in 2007, followed by a decline. In the United States, GDP has doubled since 1990, but CO2 emissions have returned to the level back then. In the case of the European Union (EU), the economy is 66% larger now, while CO2 emissions are 30% lower than in 1990. Similar trends are being observed across other advanced economies as well. Together, these advanced economies account for well over half of global GDP and over one third of energy demand. The fall in CO2 emissions in advanced economies is also seen while considering consumption-based metrics, meaning that the fall in emissions in these regions is not merely a result of offshoring of manufacturing.

In many emerging and developing economies, the trajectories of CO2 emissions and GDP growth have also started to diverge. The Chinese economy has seen a fourteen-fold growth since 1990, but its CO2 emissions are five times what they were in 1990. Similarly in India, GDP growth has outpaced CO2 emissions growth by over 50%. China and India along with advanced economies account for over 80% of global GDP and nearly 70% of energy demand. Other emerging and developing economies, such as those in Africa, Eurasia and Latin America, have also seen divergent trends of economic activity and emissions.

There are only a handful of countries and regions where GDP and emissions continue to march shoulder to shoulder. One of them is Southeast Asia, where hydropower has not kept up with the rising demand for electricity, and the share of coal in power generation and industrial energy demand has more than doubled between 1990 and 2022. Another is the Middle East, due to the availability of cheap fossil fuels, the existence of inefficient subsidies for fossil fuel consumption, and the doubling of energy intensity in industry in this period – meaning that twice as much energy is now needed to generate the same unit of industrial activity in this region than three decades ago. Southeast Asia and the Middle East together account for 6.6% of the global GDP. 

GDP and CO2 emissions by region

Regions where emissions are falling while GDP continues to grow...

United States European Union Japan and Korea Australia and New Zealand
Japan and Korea Australia and New Zealand

Regions where emissions and GDP growth are diverging...

China India Africa Latin America
Africa Latin America

Regions where emissions have grown at par with GDP...

Southeast Asia Middle East

Note: GDP is based on 2022 MER. Data for 2022-2030 is from the Stated Policies Scenario (STEPS).

The World Energy Outlook provides a view on how GDP and emissions might evolve in the coming years, under different scenarios and assumptions about the evolution of government policies. In a scenario based on today’s policy settings (the Stated Policies Scenario, or STEPS), the loosening of the relationship between GDP and CO2 emissions accelerates across the board, including in the Middle East and Southeast Asia. This leads to a global CO2 emissions peak well before 2030 in the STEPS even as global GDP continues to grow.

This loosening of the relationship between GDP and CO2 emissions in recent years is the result of four factors:

  • Rapid growth in clean energy investment. Two decades ago, for every dollar spent on fossil fuel infrastructure, only 50 cents were spent on clean energy. This ratio increased to 1:1 in 2016, and today, 1.8 dollars are invested in clean energy for every dollar invested in fossil fuels. The results of this switch in capital flows are most visible in the electricity sector, where the share of low-emissions generation (renewables and nuclear) is already above 40%; the new electricity market report from IEA highlights that all the forecast growth in electricity demand through 2026 will be met from low-emissions sources.
  • A growing trend of electrification globally, in parallel to the growing share of clean electricity generation. This includes the uptake of electric mobility, electrified heating via heat pumps, the electrification of industrial and agricultural processes, and electric cooking. In particular, the number of electric vehicles on the road grow five-fold between 2023 and 2030 in the STEPS. In 1990, electricity constituted around 13% of the final consumption of energy. Today, it is 20%, and rising. Alongside emissions reductions from expanding the use of clean electricity, the switch to electricity brings intrinsic gains in efficiency as, for example, electric motors are considerably more efficient than motors fuelled by fossil fuels.
  • Improvements in technical energy efficiency across sectors has shaved off energy demand across a range of economic sectors and activities. Refrigerators, air conditioners, vehicles, electric motors and industrial boilers are among the various technologies that have seen marked improvements in efficiency. As a result, since 1990, there has been a 36% decline in the amount of energy needed to generate a unit of global GDP. The 2022 energy crisis led to a major escalation in action, with countries representing 70% of global energy demand introducing or significantly strengthening efficiency policy packages.
  • Transitions away from coal in many advanced economies. Notably, the surge in production of cheap domestic natural gas in the United States has been leading to a switch from coal to gas-fired power generation – in parallel to the rapid growth in renewable electricity generation capacity.

In addition to these energy-sector specific factors, there are structural aspects of the economy that determine energy demand and CO2 emissions. Globally, the services sector has had a larger contribution to economic growth than industry, which is a far more energy intensive. Even in China, where industrial activity has seen a 20-fold growth since 1990, the services sector has had a larger contribution to economic growth than industry in this period.

However, the significant loosening of the ties between GDP and CO2 emissions, as seen in the STEPS, is not enough to reach global climate goals. What is needed is to break this relationship completely. This is what happens in the Announced Pledges Scenario (APS), in which all countries achieve their national energy and climate goals in full, and even more quickly in the Net Zero Emissions (NZE) by 2050 Scenario, which represents the pathway to limit global average temperature rise to 1.5 degrees above pre-industrial levels in 2100. 

World GDP and CO2 emissions, 1990-2030

Note: GDP is based on 2022. NZE = Net Zero Emissions by 2050 Scenario. APS= Announced Pledges Scenario.

Advanced, emerging and developing economies will all need to scale up clean energy investment to align themselves to the APS and NZE Scenario trajectories. With adequate clean energy investment, international collaboration and conducive policies, developing economies can chart a new low-emissions development pathway that brings strong economic growth without the associated emissions.

With this challenge in mind, the IEA has highlighted the key steps that can shift the energy system on to a more sustainable path, including a tripling in renewable capacity by 2030, doubling the rate of improvement in energy efficiency, transitioning away from fossil fuels in an orderly and equitable way, reducing methane emissions and scaling up financing for emerging and developing economies. These elements were central to the discussions and outcomes at COP28 in Dubai. Delivering on this agenda will mark a hugely significant moment in the history of energy, decisively decoupling the achievement of development goals from the large-scale release of emissions to the atmosphere.