Energy consumption, economic growth and CO2 emissions: evidence from G7 countries
| Published date | 07 January 2019 |
| DOI | https://doi.org/10.1108/WJSTSD-01-2018-0007 |
| Pages | 22-39 |
| Date | 07 January 2019 |
| Author | Umer Jeelanie Banday,Ranjan Aneja |
| Subject Matter | Public policy & environmental management,Environmental technology & innovation |
Energy consumption, economic
growth and CO
2
emissions:
evidence from G7 countries
Umer Jeelanie Banday and Ranjan Aneja
Department of Economics,
Central University of Haryana School of Arts,
Humanities and Social Sciences,
Mahendragarh, India
Abstract
Purpose –The purpose of this pape r is to find out the relationship b etween energy consumption, ec onomic
growth and CO
2
emissions for the G7 countries over the period 1971–2014. The second intent of the paper is
to make a comparison whe ther it is renewable energy consump tion, non-renewable energy co nsumption, or
both that determine sus tainable economic growth in G7 countries.
Design/methodology/approach –The authors testify the relationship among energy consumption,
economic growth and CO
2
emissions using numerous econometric techniques. The authors have
applied pooled mean group autoregressive distribution model (ARDL) for long-run and short-run
relationships for individual countries. Finally, the authors have applied Granger causality testing based
on Dumitrescu and Hurlin (2012) andEmirmahmutogluandKose’s (2011) approach in order to check the
causal relationship between energy consumption and economic growth, CO
2
emission and economic
growth and vice versa.
Findings –However, energy usage is a greater concern due totheincreaseinimportedenergyprices.
With this preposition, new thinking needs to be carried out for energy usage and sustainable economic
growth. The authors consider cross-sectional reliance and cross-country heterogeneity for seven
developed countries. The tests utilized in this investigation include the bootstrap causality approach of
Dumitrescu and Hurlin (2012) and LA–VAR approach of Toda and Yamamoto (1995) that permits testing
the causality for every individual panel individuals independently. However, not very many empirical
works bring these two separate streams of writing together to analyze the causal connections between
energy consumption, economic growth and CO
2
emission for G7 countries.
Originality/value –However, energy usage is a greater concern due to the increase in imported energy
prices. Meanwhile, the exhaustive use of fossil fuels increases emission level which leads to climate change,
global warming, reduction in agriculture productivity and danger to human life. With this preposition, new
thinking needs to be carried out for energy usage and sustainable economic growth. There are limited number
of studies addressing energy consumption, economic growth and CO
2
emission relationship. This study
employs different methodology to find out the relationship among the variables.
Keywords Economic growth, ARDL, G7, Energy consumption, CO
2
emissions
Paper type Research paper
1. Introduction
Economic growth, energy consumption and increasing carbon emission are one of the
most ongoing concerns in the world community. The growing concern of energy security
and global warming has been researched intensively in many research works from the last
two decades. It is a controversial topic with regard to the traditional neo-classical growth
model, which treats land, labor and capital as major input sources for production
(Ghali and El-Sakka, 2004; Soytas and Sari, 2006, 2007; Narayan and Smyth, 2009).
Energy serves as a major element for economic growth in the era of liberalization,
privatization and globalization, especially for developing countries (Cleveland et al., 1984).
World Journal of Science,
Technology and Sustainable
Development
Vol. 16 No. 1, 2019
pp. 22-39
© Emerald PublishingLimited
2042-5945
DOI 10.1108/WJSTSD-01-2018-0007
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2042-5945.htm
The authors wouldlike to thank two anonymous refereesand the Editor for their valuable suggestions
and helpfulcomments thathave greatly enhancedthe qualityof this paper. Any remaining errors are ours.
22
WJSTSD
16,1
The role of energy is important in generating income and employment, and thus economy
heavily depends on it. The renewable sources of energy get attention due to a number of
attributes. The rising level of carbon dioxide emissions (CO
2
) and methane gas causes
environmental degradation and global warming that are some factors which kindle
interest in renewable sources of energy.
In the literature of energy consumption, economic growth and environment are getting
attention from the past few decades. The Environmental Kuznets Theory (EKC) is the first
theory which reveals a relationship between economic growth and environment. The theory
postulates that with the increase in economic growth, the environmental degradation
increases till it crosses the peak level (Ang, 2007; Banday et al., 2014; Banday and Ismail,
2017; Saboori et al., 2012). In the earlier stages of development of the country, the pollution
level increases, but it starts decreasing as the level of income crosses the turning point of
inverted Kuznets U-curve, as supported by Grossman and Krueger (1991). However,
it is not important that with the increase in income, the CO
2
emissions level increases.
It significantly depends upon the composition of the country and the use of natural
resources like wind, solar, tide and wave, waste and biomass. Holtz-Eakin and Selden (1995)
found non-increasing and non-decreasing curves, whereas Friedl and Getzner (2003)
observed an N-shaped curve. Jaunky (2010) studied economic growth and CO
2
emissions
relationship among 36 high-income countries over the period 1980–2005. He concluded that
there is a unidirectional causality from gross domestic product (GDP) to CO
2
emissions in
both short run and long run. However, Richmond and Kaufmann (2006) did not find any
significant relationship between GDP growth and CO
2
emissions.
However, according the pioneering work of Kraft and Kraft (1978), higher economic
growth can be achieved by the efficient use of energy consumption and efficient use of
energy can be achieved by higher level of economic growth. Apergis and Payne (2011)
determined the relationship between economic growth and renewable and non-renewable
energy consumption for 80 countries within a dynamic panel framework which includes
the variables like labor and gross capital formation over the period 1990–2007.
They concluded that long-run elasticity for non-renewable energy consumption is higher
than the other sources of energy, and it is both renewable and non-renewable energy
consumption which matter to economic growth. They also found the long-run association
between the variables, and causality shows the bidirectional results from renewable and
non-renewable energy to economic growth for both the periods and validates the feedback
hypothesis. Researchers like Stern (1993), Oztuk et al. (2010), Lee (2006) and Yuan et al.
(2007) concluded that a relationship exists between energy consumption and economic
growth. Aneja et al. (2017) and Oguz and Alper (2013) revealed that it is economic growth
which leads to energy consumption. According to the results of Tugcu et al. (2012),
Soytas and Sari (2007) and Menegaki (2011), no causality relationship exists between
economic growth and energy consumption.
The G7 (Canada, France, Germany, Italy, Japan, UK, and USA) countries represent
50 percent of global GDP and 60 percent of global net wealth. The amount of carbon
emissions has massively expanded over the previous years. The world CO
2
outflows
increased from 19.35mn kilotons in 1980 to 35.84m kilotons in 2013, showing that it
increased by around 84 percent along this period (WDI, 2017). G7 countries are the ones
which account for 36.6 percent of total world energy production and 33.7 percent of the CO
2
emission over the period 2000–2008 (World Development Indicators, 2012). However, energy
usage is a greater concern due to the increase in imported energy prices. Meanwhile, the
exhaustive use of fossil fuels increases emission level which leads to climate change, global
warming, reduction in agriculture productivity and danger to human life. With this
preposition, new thinking needs to be carried out for energy usage and sustainable
economic growth. We also intend to explore the aspect of sustainability of economic growth,
23
Evidence from
G7 countries
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