Cointegration between Energy Consumption, CO2 Emissions, and GDP in India

Abstract

This article examines the cointegration relationship among the per capita gross domestic product (GDP), per capita energy consumption, and per capita carbon dioxide (CO2) emissions, the effect of energy consumption and per capita GDP on CO2 emissions for India covering the period 1980–2014. All the data variables are non-stationary in level form but are integrated of order one. Johansen’s rank procedure and Engle–Granger vector autoregressive (VAR) is used to determine the cointegration relation and direction of causality among the variables (Murthy, 2011). Vector error correction mechanism is used to study the short-run behavior of the variables; impulse responses to the shocks of variables are also studied in order to identify the variance decomposition of variables energy consumption, CO2 emissions, and economic activity. VAR model is used for short-term forecasting of CO2 emissions. Results have identified that the data variables energy consumption, CO2 emissions, and GDP are cointegrated and VAR is proved to be good tool for short-term forecasting of CO2 emissions.