Abstract

This paper explored the energy–environment–economy (EEE) causal nexus of Pakistan, thereby reporting the causal determinants of the EEE nexus by employing the newly developed modified Peter and Clark (PC) algorithm. The modified PC algorithm was employed to investigate the causal ordering of energy consumption, CO2 emissions and economic growth across Pakistan’s domestic, industrial, transportation and agricultural sectors. An empirical comparison, i.e., following Monte Carlo simulation experiments demonstrates that the proposed modified PC algorithm is superior to the original PC proposition and can differentiate between true and spurious nexus causalities. Our results show that significant causality is running from energy consumption in industrial and agricultural sectors towards economic growth. There is no causal association between energy consumption and economic growth in the domestic and transportation sectors. On the other hand, causality runs from energy consumption in the transportation, domestic and industrial sectors towards CO2 emissions. It is concluded that energy consumption in industrial and agricultural sectors leads to economic growth alongside the associated CO2 emissions. On the other hand, the contribution of domestic and transportation sectors in economic growth is trivial with significant CO2 emissions. This paper provides novel empirical evidence of impacts of energy mismanagement at sectoral levels, economic output and environmental consequences; alongside policy recommendations for sustainable energy-based development on the national scale.

Highlights

  • No causality is running from energy consumption to economic growth and vice-versa

  • The discovery of a sectoral level energy–environment–economy causal nexus is a major outcome of this study

  • It was revealed by Fazal et al [14] that unidirectional causality runs from economic growth to CO2 emissions in Pakistan; no causality is running from energy consumption to economic growth and vice-versa

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Summary

Introduction

The innovation in this work further lies in both case study (i.e., Pakistan) and choice of methods followed It is because, Pakistan provides a unique example of an economy where energy consumption does not contribute towards economic growth on a national scale. Monte Carlo simulation experiments are conducted to demonstrate the power of modified PC algorithms This strategy is employed to explore the determinants of the EEE causal nexus in Pakistan. The following sections deal with, in order: energy-driven air pollution in Pakistan (Section 1.1); cross-sectoral energy consumption in Pakistan (Section 1.2); energy, environment and economic growth correlation in Pakistan (Section 1.3); theoretical and methodological framework (Section 2); results and discussion (Section 3); and conclusions and policy recommendations (Section 4)

Energy-Driven Air Pollution in Pakistan
Theoretical and Methodological Framework
Development of GTA Based on Modified PC Algorithm
Monte Carlo Simulation Experiment
Energy–Environment–Economy Causal Nexus According to Sector
Energy flow sector
Performance Evaluation of PC and Modified PC Algorithms
Size Analysis
Power Comparison
Concluding Remarks and Policy Recommendations
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