Dynamic impact of household consumption on its CO2 emissions in Malaysia

Abstract

This article aims to measure the dynamic impact of household consumption (final household consumption expenditure, LHC) on CO2 emission from household’s energy consumption in Malaysia from 1971 to 2010. The estimation of autoregressive distributed lag (ARDL) bounds test confirms a non-monotonic relationship between LHC and residential CO2 emission. In the long run, there is a positive relationship between LHC and CO2 emission as well as a negative relationship between quadratic forms of LHC and CO2 emission which indicates the existence of an inverted U-shaped relationship between these two variables. The analysis also found a similar relationship in both the short and long run. To confirm the non-monotonous relationship, the U test of Sasabuchi–Lind–Mehlum (2010) approach has followed to obtain the sufficient conditions for the existence of inverted U relationship. Moreover, the U test of Sasabuchi–Lind–Mehlum (2010) found that CO2 emission increases with increasing LHC up to 6.5 units, but it declines with an additional increase of LHC which is also found by the ARDL model. However, the existence of environmental Kuznets curve implies that in the long run, household CO2 emission declines with the additional increase of household consumption in the Malaysian economy.