Asymmetric impacts of energy efficiency on carbon emissions: A comparative analysis between developed and developing economies

Abstract

This paper examines the asymmetric long-run and short-run impacts of energy efficiency on carbon emissions for 28 developed and 34 developing economies, covering the period 1990–2017. The asymmetries are investigated by employing a nonlinear panel autoregressive distributed lag modelling framework. The analysis accounts for nonlinear complexities in energy relations and heterogeneity between developed and developing economies. The asymmetric long-run impacts of energy efficiency on carbon emissions are evident for developed and developing economies, but the effects are heterogeneous. In the long-run, a 1% increase in positive shocks (in energy efficiency) leads to a fall in carbon emissions by 1.24% and 1.19% for developed and developing economies, respectively. A similar rise in negative shocks (in energy efficiency) leads to an increase in carbon emissions by 0.37% and 1.06% for developed and developing economies, respectively. The short-run impacts are observed to be symmetric for both developed and developing economies. These results imply that the broader benefits of energy efficiency, like employment and energy productivity, should be considered in energy efficiency policy assessment. The developing economies should create a strong substitution effect between energy and other inputs to compensate for energy efficiency losses.