A Relational Analysis Model of the Causal Factors Influencing CO2 in Thailand’s Industrial Sector under a Sustainability Policy Adapting the VARIMAX-ECM Model

Abstract

Sustainable development is part and parcel of development policy for Thailand, in order to promote growth along with economic growth, social advancement, and environmental security. Thailand has, therefore, established a national target to reduce CO2 emissions below 20.8%, or not exceeding 115 Mt CO2 Equivalent (Eq.) by 2029 within industries so as to achieve the country’s sustainable development target. Hence, it is necessary to have a certain measure to promote effective policies; in this case, a forecast of future CO2 emissions in both the short and long run is used to optimize the forecasted result and to formulate correct and effective policies. The main purpose of this study is to develop a forecasting model, the so-called VARIMAX-ECM model, to forecast CO2 emissions in Thailand, by deploying an analysis of the co-integration and error correction model. The VARIMAX-ECM model is adapted from the vector autoregressive model, incorporating influential variables in both short- and long-term relationships so as to produce the best model for better prediction performance. With this model, we attempt to fill the gaps of other existing models. In the model, only causal and influential factors are selected to establish the model. In addition, the factors must only be stationary at the first difference, while unnecessary variables will be discarded. This VARIMAX-ECM model fills the existing gap by deploying an analysis of a co-integration and error correction model in order to determine the efficiency of the model, and that creates an efficiency and effectiveness in prediction. This study finds that both short- and long-term causal factors affecting CO2 emissions include per capita GDP, urbanization rate, industrial structure, and net exports. These variables can be employed to formulate the VARIMAX-ECM model through a performance test based on the mean absolute percentage error (MAPE) value. This illustrates that the VARIMAX-ECM model is one of the best models suitable for the future forecasting of CO2 emissions. With the VARIMAX-ECM model employed to forecast CO2 emissions for the period of 2018 to 2029, the results show that CO2 emissions continue to increase steadily by 14.68%, or 289.58 Mt CO2 Eq. by 2029, which is not in line with Thailand’s reduction policy. The MAPE is valued at 1.1% compared to the other old models. This finding indicates that the future sustainable development policy must devote attention to the real causal factors and ignore unnecessary factors that have no relationships to, or influences on, the policy. Thus, we can determine the right direction for better and effective development.