Trade-off between environment and economy: The relationship between carbon and inflation

Abstract

Introduction: The global pandemic since 2019 has caused crushing blow to healthy economic developments, particularly the harmonious development of environment and economy. Given the violent contradiction between health and economy, this study focuses on the controversial relationship between inflation and important environmental indicators. Methods: Specifically, we collect monthly data on inflation and carbon returns from three representative pilots in China and make a comprehensive investigation of the relationship between carbon and inflation within the framework of the Environmental Kuznets Curve (EKC). Results: Some significant empirical results are found. First, inflation shows a linear impact on carbon returns, despite the signals of inflation vary in pilots. Second, there exists an inverted U-shape connection in Shenzhen and Guangdong pilots. Third, inflation appears to be a non-negligible factor in pilot fluctuations, despite differences exist among pilots. Discussion: Considering the pressing targets of carbon peaking and carbon neutrality in China, this investigation provides important implications to policy makers in implementing differentiated policies across regions, particularly in the turbulent situations caused by frequent climate policy changes and global pandemic developments.