Economic growth, energy consumption and CO₂ emissions in India: a disaggregated causal analysis

ABSTRACT

This study examines the long-run and short-run causal relationships among energy consumption, real gross domestic product (GDP) and CO₂ emissions using aggregate and disaggregate (sectoral) energy consumption measures utilising annual data from 1971 to 2011. The autoregressive distributed lag bounds test reveals that there is a long-run relationship among the variables concerned at both aggregate and disaggregate levels. The Toda–Yamamoto causality tests, however, reveal that the long-run as well short-run causal relationship among the variables is not uniform across sectors. The weight of evidences of the study indicates that there is short-run causality from electricity consumption to economic growth, and to CO₂ emissions. The results suggest that India should take appropriate cautious steps to sustain high growth rate and at the same time to control emissions of CO₂. Further, energy and environmental policies should acknowledge the sectoral differences in the relationship between energy consumption and real gross domestic product.

KEYWORDS:

• Energy consumption
• economic growth
• CO₂ emissions
• disaggregate
• causality
• India

Acknowledgments

We have benefited from valuable comments during the Workshop on Sustaing High Growth in India in July 2013 at Institute of Economic Growth in New Delhi. The authors also would like to thank two anonymous reviewers for their valuable comments and suggestions on the earlier version of this paper the usual disclaimer applies.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. CO₂ is a major GHG and is being considered as one of the most important factors responsible for an increase in global warming (Bruce, Houghton, and Watson 1996), (CO₂ constitutes 70% of GHG emission in India (INCCA 2010).

2. The word disaggregated and sectoral refers to the same meaning and has been used interchangeably for each other in the study.

3. Nain, Ahmad, and Kamiah (2012) have analysed the energy use–growth relationship at the sectoral level, but they have used a bivariate framework excluding CO₂ emissions.

4. See, for details, Emran, Shilpi, and Alam (2007), Nain and Kamaiah (2012), among others.

5. Apart from the above for comprehensive review, one may also refer to Shahbaz et al. (2014b), Shahbaz, Tang, and Shahbaz Shabbir (2011)and for specifically Indian studies, Ahmad et al. (2014) and Tiwari (2011a).

6. See for some recent studies, Shahbaz et al. (2014a), Shahbaz and Leitão (2013) and Shahbaz, Lean, and Shabbir (2012).

7. It may be pertinent to note that the empirical framework underlying the cointegrating eqaution is based on the studies by Sari and Soytas (2004), Soytas, Sari and Ewing (2007), Sari, Ewing and Soytas (2008) and Soytas and Sari (2009).

8. To conserve the space, the details of these tests are not explained, interested reader may refer to Maddala and Kim (1999).

9. Those studies differ from our study in terms of time span, methodologies and variables considered.

10. Similar results are reported by Nain, Ahmad, and Kamaiah (2012), the only study that has analysed relationship at the disaggregated level in the Indian context.

11. Integrated Energy Policy 2008, Planning Commission, Govt. of India.

12. However, we should admit that in general context these two variables seem not related directly as both are determined some other variables. But in this particular context it reflects some meaningful association as described in various studies.

13. See Jahangir Alam et al. (2012) and Tiwari (2011a) for more on this.