The relationship between economic growth, energy consumption, and CO2 emissions: Empirical evidence from China.

Following several decades of rapid economic growth, China has become the largest energy consumer and the greatest emitter of CO2 in the world. Given the complex development situation faced by contemporary China, Chinese policymakers now confront the dual challenge of reducing energy use while continuing to foster economic growth. This study posits that a better understanding of the relationship between economic growth, energy consumption, and CO2 emissions is necessary, in order for the Chinese government to develop the energy saving and emission reduction strategies for addressing the impacts of climate change. This paper investigates the cointegrating, temporally dynamic, and casual relationships that exist between economic growth, energy consumption, and CO2 emissions in China, using data for the period 1990-2012. The study develops a comprehensive conceptual framework in order to perform this analysis. The results of cointegration tests suggest the existence of long-run cointegrating relationship among the variables, albeit with short dynamic adjustment mechanisms, indicating that the proportion of disequilibrium errors that can be adjusted in the next period will account for only a fraction of the changes. Further, impulse response analysis (which describes the reaction of any variable as a function of time in response to external shocks) found that the impact of a shock in CO2 emissions on economic growth or energy consumption was only marginally significant. Finally, Granger casual relationships were found to exist between economic growth, energy consumption, and CO2 emissions; specifically, a bi-directional causal relationship between economic growth and energy consumption was identified, and a unidirectional causal relationship was found to exist from energy consumption to CO2 emissions. The findings have significant implications for both academics and practitioners, warning of the need to develop and implement long-term energy and economic policies in order to effectively address greenhouse effects in China, thereby setting the nation on a low-carbon growth path.

[1]  J. Squalli.  Electricity consumption and economic growth: Bounds and causality analyses of OPEC members , 2007 .

[2]  C. Granger.  Investigating Causal Relations by Econometric Models and Cross-Spectral Methods , 1969 .

[3]  Khalifa H. Ghali,et al.  Energy use and output growth in Canada: a multivariate cointegration analysis , 2004 .

[4]  C. Granger.  Some recent development in a concept of causality , 1988 .

[5]  Hai-long Ma,et al.  Spatial differences and multi-mechanism of carbon footprint based on GWR model in provincial China , 2014, Journal of Geographical Sciences.

[6]  Ilhan Ozturk,et al.  On the relationship between energy consumption, CO2 emissions and economic growth in Europe , 2010 .

[7]  Linyan Sun,et al.  The relationship between energy consumption structure, economic structure and energy intensity in China , 2009 .

[8]  N. Yavuz,et al.  CO2 Emission, Energy Consumption, and Economic Growth for Turkey: Evidence from a Cointegration Test With a Structural Break , 2014 .

[9]  B. Ewing,et al.  Energy consumption, income, and carbon emissions in the United States , 2007 .

[10]  Seung-Hoon Yoo,et al.  Energy Consumption, Co2 Emission, and Economic Growth: Evidence from Chile , 2015 .

[11]  M. Hossain,et al.  Panel estimation for CO2 emissions, energy consumption, economic growth, trade openness and urbanization of newly industrialized countries , 2011 .

[12]  W. Fuller,et al.  Distribution of the Estimators for Autoregressive Time Series with a Unit Root , 1979 .

[13]  S. Johansen,et al.  MAXIMUM LIKELIHOOD ESTIMATION AND INFERENCE ON COINTEGRATION — WITH APPLICATIONS TO THE DEMAND FOR MONEY , 2009 .

[14]  C. Granger,et al.  Co-integration and error correction: representation, estimation and testing , 1987 .

[15]  Xiaohong Zhang,et al.  The interactions between China's economic growth, energy production and consumption and the related air emissions during 2000–2011 , 2014 .

[16]  Sajal Ghosh,et al.  Long-term equilibrium relationship between urbanization, energy consumption and economic activity: Empirical evidence from India , 2014 .

[17]  Peter Pedroni,et al.  Purchasing Power Parity Tests in Cointegrated Panels , 2001, Review of Economics and Statistics.

[18]  S. Paul,et al.  CO2 emission from energy use in India: a decomposition analysis , 2004 .

[19]  A. Talha Yalta,et al.  Analyzing energy consumption and GDP nexus using maximum entropy bootstrap: The case of Turkey , 2011 .

[20]  Kostas Bithas,et al.  A meta-analysis investigation of the direction of the energy-GDP causal relationship: implications for the growth-degrowth dialogue , 2014 .

[21]  Nicholas Apergis,et al.  Energy consumption and economic growth in Central America: Evidence from a panel cointegration and error correction model , 2009 .

[22]  Yuan Wang,et al.  Energy consumption and economic growth in China: A multivariate causality test , 2011 .

[23]  Hai-long Ma,et al.  Exploring the relationship between urbanization and the eco-environment-A case study of Beijing-Tianjin-Hebei region , 2014 .

[24]  Stephan Popp,et al.  The energy consumption - real GDP nexus revisited : empirical evidence from 93 countries , 2012 .

[25]  Christian Gross,et al.  Is There Really Granger Causality between Energy Use and Output? , 2013 .

[26]  P. Pedroni.  PANEL COINTEGRATION: ASYMPTOTIC AND FINITE SAMPLE PROPERTIES OF POOLED TIME SERIES TESTS WITH AN APPLICATION TO THE PPP HYPOTHESIS , 2004, Econometric Theory.

[27]  Andrea Baranzini,et al.  The Causal Relationship between Energy Use and Economic Growth in Switzerland , 2013 .

[28]  Ramazan Sari,et al.  Energy consumption and GDP: causality relationship in G-7 countries and emerging markets , 2003 .

[29]  R. Begum,et al.  CO2 emissions, energy consumption, economic and population growth in Malaysia , 2015 .

[30]  Nicholas Apergis,et al.  On the causal dynamics between emissions, nuclear energy, renewable energy, and economic growth ☆ , 2010 .

[31]  Xiaohong Zhang,et al.  The interactions among China's economic growth and its energy consumption and emissions during 1978–2007 , 2013 .

[32]  Abdul Hakim Mohammed,et al.  Examining the link between energy consumption, carbon dioxide emission, and economic growth in Latin America and the Caribbean , 2013 .

[33]  Kazi Sohag,et al.  Regional differences in the dynamic linkage between CO2 emissions, sectoral output and economic growth , 2014 .

[34]  Hai-long Ma,et al.  Quantifying the relationship between urban development intensity and carbon dioxide emissions using a panel data analysis , 2015 .

[35]  Jeroen Buysse,et al.  Dynamic modeling of causal relationship between energy consumption, CO2 emissions and economic growth in India , 2011 .

[36]  A. Akinlo,et al.  Energy consumption and economic growth: Evidence from 11 Sub-Sahara African countries , 2008 .

[37]  David I. Stern,et al.  Carbon Dioxide Emissions in the Short Run: The Rate and Sources of Economic Growth Matter , 2015 .

[38]  Zhaohua Wang,et al.  An empirical research on the influencing factors of regional CO2 emissions: Evidence from Beijing city, China , 2012 .

[39]  S. Johansen.  STATISTICAL ANALYSIS OF COINTEGRATION VECTORS , 1988 .

[40]  Atul K. Jain,et al.  The global carbon budget 1959-2011 , 2012 .

[41]  David I. Stern,et al.  A multivariate cointegration analysis of the role of energy in the US macroeconomy , 2000 .

[42]  Mohammad Salahuddin,et al.  Economic growth, energy consumption and CO2 emissions in Gulf Cooperation Council countries , 2014 .

[43]  C. Tang,et al.  The dynamic links between CO2 emissions, economic growth and coal consumption in China and India , 2013 .

[44]  Shaojian Wang,et al.  The Relationship between Urbanization, Economic Growth and Energy Consumption in China: An Econometric Perspective Analysis , 2015 .

[45]  Hsiao-Tien Pao,et al.  CO2 emissions, energy consumption and economic growth in BRIC countries , 2010 .

[46]  Chu Wei,et al.  Economic development and carbon dioxide emissions in China: Provincial panel data analysis , 2012 .

[47]  Seung-Hoon Yoo,et al.  Energy consumption, CO2 emissions, and economic growth: evidence from Indonesia , 2014 .

[48]  J. Kraft,et al.  Relationship between energy and GNP , 1978 .

[49]  D. Stern,et al.  Aggregation and the role of energy in the economy , 2000 .

[50]  A. Jalil,et al.  Environment Kuznets curve for CO2 emissions: A cointegration analysis for China , 2009 .

[51]  Chuanglin Fang,et al.  Spatiotemporal Characteristics, Determinants and Scenario Analysis of CO2 Emissions in China Using Provincial Panel Data , 2015, PloS one.

[52]  Chuanglin Fang,et al.  Urbanisation, energy consumption, and carbon dioxide emissions in China: A panel data analysis of China’s provinces , 2014 .

[53]  Yong Geng,et al.  Determinants of stagnating carbon intensity in China , 2014 .

[54]  Yue-Jun Zhang,et al.  Interpreting the dynamic nexus between energy consumption and economic growth: Empirical evidence from Russia , 2011 .

[55]  Bangzhu Zhu,et al.  Examining the impact factors of energy-related CO2 emissions using the STIRPAT model in Guangdong Province, China , 2013 .

[56]  W. Fuller,et al.  LIKELIHOOD RATIO STATISTICS FOR AUTOREGRESSIVE TIME SERIES WITH A UNIT ROOT , 1981 .

[57]  Wenwen Wang,et al.  Decouple indicators on the CO2 emission-economic growth linkage: The Jiangsu Province case , 2013 .

[58]  Yong U. Glasure.  Energy and national income in Korea: further evidence on the role of omitted variables , 2002 .

[59]  I. Ozturk,et al.  CO2 emissions, energy consumption and economic growth in Turkey , 2010 .

[60]  C. Granger.  Testing for causality: a personal viewpoint , 1980 .

[61]  Elif Akbostancı,et al.  CO2 emissions of Turkish manufacturing industry: A decomposition analysis , 2011 .

[62]  S. Katircioğlu,et al.  Economic growth, CO2 emissions, and energy consumption in the five ASEAN countries , 2015 .

[63]  Ramazan Sarı,et al.  Are global warming and economic growth compatible? Evidence from five OPEC countries? , 2009 .

[64]  Atef Saad Alshehry,et al.  Energy consumption, carbon dioxide emissions and economic growth: The case of Saudi Arabia , 2014 .