Causality between energy, carbon, and economic growth: empirical evidence from the European Union

Janda, Karel and Torkhani, Marouan (2016): Causality between energy, carbon, and economic growth: empirical evidence from the European Union.

Abstract

This paper examines the relationship between energy consumption and economic growth and between energy consumption and greenhouse emissions for the EU countries, using time series data from 1996 to 2012 within a multivariate framework for 26 EU countries. The energy sources considered are oil consumption, natural gas consumptions, and renewable energies including biomass as a distinct part. Unit Root Tests, cointegration test, Pairwise Granger causality tests, and Error Correction Model are employed to find out the type of the causal relationship. We find out that there is in the short run, a positive unidirectional causal relationship running from oil consumption to economic growth. There is also a positive bidirectional causal relationship between renewable energies and economic growth and between greenhouse emissions and economic growth. However, there is also an unexpected negative bidirectional causal relationship between biomass consumption and gas consumption. From the greenhouse emissions perspective, we can see in the short run, a negative bidirectional causal relationship between greenhouse emissions and renewable energies, and a positive unidirectional causal relationship running from both oil consumption and biomass consumption to greenhouse emissions.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic growth, energy consumption, oil consumption, natural gas, renewable energies, biomass
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q28 - Government Policy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q42 - Alternative Energy Sources; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

-Antzoulatos, Angelos A. "Macroeconomic forecasts under the prism of error-correction models." Journal of Economics and Business 50.6 (1998): 535-550.

-Chang, Ching-Chih. "A multivariate causality tests of carbon dioxide emissions, energy consumption and economic growth in China." Applied Energy 87.11 (2010): 3533-3537.

- Fei, Li, et al. "Energy consumption-economic growth relationship and carbon dioxide emissions in China." Energy policy 39.2 (2011): 568-574.

-Im K. S., Pesaran M. H., & Shin Y. (2003). Testing for Unit Roots in heterogeneous panels. Journal of Econometrics, Volume 115: 53-74.

- Levin A., Lin C. F., & Chu C. S. (2002). Unit Root Tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, Volume 108: 1-24.

-Karaman, Orsal Deniz Dilan. Comparison of panel cointegration tests. SBF 649 Discussion Paper 2007-029 Humboldt-Universität zu Berlin, Germany, 2007.

-Payne, J. E. (2010). Survey of the international evidence on the causal relationship between energy consumption and growth. Journal of Economic Studies, 37(1):53 – 95.

-Pedroni P. (2000). Fully Modified OLS for heterogeneous cointegrated panels. Nonstationary Panels, Panel Cointegration and Dynamic Panels, Volume 15: 93–130.

-Rafiq, S., & Alam, K. (2010). Identifying the determinants of renewable energy consumption in leading renewable energy investor emerging countries. InProceedings of the 39th Australian Conference of Economists (ACE 2010). Economic Society of Australia.

- Ramirez, Miguel D. "A panel Unit Root and panel cointegration test of the complementarity hypothesis in the Mexican case: 1960–2001." Atlantic Economic Journal 35.3 (2007): 343-356.

-Stern, D. I. (2010). The role of energy in economic growth. Annals of the New York Academy of Sciences, 1219(1), 26-51.