Decomposition and decoupling analyses of CO2 emissions and economic growth: A comparative study between Malaysia and Vietnam

Abstract

During the COVID-19 pandemic, Malaysia and Vietnam has managed to show a strong positive growth domestic product (GDP) growth indicator – with both countries recording an average increase of more than 4% annually. However, there was a strong positive correlation between GDP and carbon dioxide (CO2) emissions worldwide. As the impact of climate change becomes more evident, especially in Southeast Asia, it is crucial to assess the relationship between these two indicators caused by gross electricity generation, especially in the post-pandemic period. In this study, we compared the decoupling performance of CO2 emissions and GDP growth between Malaysia and Vietnam. The data for Malaysia and Vietnam were quantified by the decoupling method based on the Tapio decoupling model. The data were then decomposed using the Kaya identity into the driving factors affecting decoupling. This was then used to form the decomposition index using the Logarithmic Mean Divisia Index-I (LMDI-I). Data were generated based on three scenarios: i) 2017-2019, i.e. pre-pandemic, ii) 2019-2020, peri-pandemic and iii) 2021-2025, to predict post-pandemic. In terms of the overall decoupling trend, the study shows that: (1) the change in CO2 emissions in both sovereign states decreased dramatically at the beginning of the COVID-19 pandemic. However, Malaysia experienced negative change in CO2 emissions, while Vietnam still experienced a positive change. This is due to Vietnam’s slightly higher reliance on coal for power generation than Malaysia. (2) A strong decoupling in the projected decoupling between the change in CO2 emissions and GDP in Vietnam, while the two indicators remain coupled for Malaysia. This is due to Vietnam’s more aggressive policy in the adoption of renewable energy - especially through the mass installation of rooftop photovoltaic systems. In contrast, Malaysian policy remains conservative, emphasising reliability at the cost of a huge year-on-year change in CO2 emissions.