Macroeconomic drivers of CO₂ emissions reduction in a transition economy: From residential extrapolation to municipal policy scaling

Abstract

Type of the article: Research ArticleAbstractThis study aims to assess a macroeconomic methodological approach for evaluating the impact of investment activity, energy efficiency, energy costs, and renewable energy development on CO₂ emissions in Ukraine, using the model’s insights for a conceptual extrapolation to the residential sector with subsequent policy scaling to the municipal building stock. The methodological basis is a top-down approach using econometric modeling (OLS) for 2002–2021, which represents the pre-war period in Ukraine. All estimations are based on aggregated macroeconomic proxy indicators and not on direct residential or municipal emissions measurement data due to a lack of reliable information. The results demonstrate that macroeconomic energy efficiency is the most powerful driver of decarbonization. An analysis of the residential sector indicates that higher household financial burdens associated with higher utility expenditures are statistically connected with lower CO₂ emissions, which may reflect demand-side adjustments in energy consumption, including price-driven savings. However, other factors, such as energy inefficiency or energy poverty, may also add to this relationship. In contrast, traditional investment activity still contributes to growing carbon footprints, with CO₂ emissions rising by 136 kg per 1% increase in gross capital formation as a share of GDP. At the same time, the estimated coefficients for global oil prices and the share of renewable energy exhibit the expected negative signs, suggesting economically meaningful long-term decarbonization tendencies. However, these relationships do not reach conventional statistical significance and should therefore be interpreted as directional trends rather than statistically confirmed effects.AcknowledgmentsThis paper is funded by the Ministry of Education and Science of Ukraine within the projects “Comprehensive vertically integrated intelligent system for monitoring and regulating energy supply in municipal sector buildings” (No. 0126U000867) and “Drivers and barriers to human capital transformation for a circular and green economy” (No. 0126U001080).