Economic growth, energy consumption and CO2 emissions in OECD (Organization for Economic Co-operation and Development)'s transport sector: A fully modified bi-directional relationship approach

Abstract

This paper explores the bi-directional long-run relationship between energy consumption in the road transport sector with CO2 emissions and economic growth in OECD countries. Using time series data from 1960 to 2008 and employing the Fully Modified Ordinary Least Squares cointegration approach, the paper shows positive significant long-run bi-directional relationship between CO2 emissions and economic growth, road sector energy consumption and economic growth and CO2 emissions and road sector energy consumption in all the OECD countries. To examine the response of each of the variables to shocks in the value of other variables, the generalized impulse response approach is employed. The response of CO2 emissions to economic growth is initially positive in most cases but it is relatively shorter when compared to its initial response to the road transport sector energy consumption. Moreover, in most cases, the response of carbon emissions to the road transport sector energy consumption lasts longer than its response to economic growth. This implies that most of the CO2 emissions from transport come from energy consumption, thus long-run policies related to the efficient use of energy and shifting to biofuel, renewable and nuclear energy can bring major benefits in mitigating GHG (Greenhouse Gas) emissions.