Dynamic linkages among hydroelectricity consumption, economic growth, and carbon dioxide emission in Malaysia

ABSTRACT

This study investigates the causal relationship between hydroelectricity consumption (HC), economic growth (GDP), and carbon dioxide (CO₂) emission in Malaysia by applying the time-series techniques. The major findings for this paper are as follows: (1) long-run relationship exists between HC, GDP, and CO₂ emissions. (2) We found a unidirectional causality relationship from HC to CO₂ emissions in the short-run while in the long-run causality runs from GDP and HC toward CO₂ emissions. (3) The results of the variance decompositions suggest that the impact of HC and CO₂ toward GDP becomes noticeable only over the long-run, providing an important policy route map for Malaysia. A step-wise (e.g. combined-use) shift from fossil fuels to Renewable Energy Sources (RESs) seems to be the viable alternative for Malaysia. In this manner, the potential of hydropower for electrification would be the way forward but with caution as the social implication should also be hand in hand with this massive development plan.

KEYWORDS:

• Causality
• CO₂ emission
• economic growth
• hydroelectricity consumption

Acknowledgements

This paper has benefited from the constructive comments from anonymous referee and the editor of this journal on the earlier version of this paper. The paper was written while the first author was the Visiting Scholar in the Faculty of Economics, University of Cambridge. He thanks the Faculty for its hospitality. The usual disclaimer regarding errors and omissions applies.

Funding

The authors gratefully acknowledge financial support from Universiti Malaysia Sarawak (UNIMAS) Geran Penyelidikan Khas (Top Down) 03(TD04)/1054/2013(02).

Notes

¹ According to the report of REN21 (2013), global demand for renewable energy continued to rise during 2011 and 2012. Renewable energy supplied 19% of global final energy consumption by the end of 2011, where approximately 9.3% came from traditional biomass. Useful heat energy from modern renewable sources accounted for 4.1% of total final energy use; hydropower made up about 3.7%; and an estimated 1.9% was provided by power from wind, solar, geothermal, and biomass, and by biofuels.

² Based on BP (2013), hydroelectricity consumption in Malaysia contributed about 2.4% of the total primary energy consumption in year 2012. Despite small figures compared to the fossil fuels, the potential of this domain in RESs is yet to be harness to the fullness in Malaysia. This strengthens the motivation and the merit of Malaysia as the choice for the paper.

³ Hydropower dams do contribute significantly to human development where firstly, it is a renewable energy source; secondly, it stores large amounts of electricity at low cost in order to meet the ever increasing demand. Furthermore, hydro dams are multipurpose in nature where it is useful for social–economic development like irrigation, water supply, flood control, and electric power.

⁴ Ong et al. (2011, Table 5, pp. 642) and Shafie et al. (2011, Table 9, pp. 4375) provide the complete lists of the hydropower dams in Malaysia.

⁵ We used Cholesky decomposition although we realized that the sensitivity of the approach to the order of the variables entering the model. In what follows, the innovations were orthogonalized in the following order: [GDP, HC, CO₂]. The variance decomposition analysis reveals information on the proportion of the movements for instance in HC due to its “own” shocks versus shocks to the GDP. A similar analogy was applied to the other variables in responses to the exogenous shocks.

⁶ The benefit of SCORE both intensive and intrusive would represent the natural resource-based industrialization for Sarawak is industrialization. It will exploit the economic potentials available in the central region, based on the comparative advantage to the era of massive industrialization by the year 2030. The benefit would be at certain beyond Sarawak when its potential is fully harness. Realizing the need to ensure the availability and security of energy, the country actively looking for alternative sources of energy, especially for electricity generation, in which mini-hydro projects had been introduced. This positive potential for future power generation is widely discussed (see papers like Borhanazad et al., 2013; Murni et al., 2013and Ali et al., 2012) as part of rural electrification projects.

Additional information

Funding

The authors gratefully acknowledge financial support from Universiti Malaysia Sarawak (UNIMAS) Geran Penyelidikan Khas (Top Down) 03(TD04)/1054/2013(02).