Economic growth, energy consumption and CO2 emissions in the countries of the European Union and the Western Balkans

Abstract

Exploring the relationship between economic growth, energy consumption and CO2 emissions is an increasingly important research issue. The paper examines the association between gross​ domestic product per capita, CO2 emissions and energy consumption from renewable sources for the 27 countries of the European Union and the Western Balkans for the period 2008–2018. The panel vector autoregressive approach (PVAR) was used in the analysis, and the panel VAR model with three variables was evaluated based on the generalized method of moments (GMM). The main findings of the paper are that there is a relationship between the investigated variables: (1) two-way relationship between gross domestic product and CO2 emissions, (2) two-way negative relationships between CO2 emissions and energy consumption from renewable sources, (3) no causality has been established between gross domestic product and energy consumption from renewable sources (4) the sign of the relationship in the direction from gross domestic product to CO2 emissions is negative, while in the opposite direction is positive. The results indicate that most of the variations in CO2 emissions are determined by variations in GDP, so reducing CO2 emissions in the long run can be achieved by continuously increasing GDP. Increasing consumption from renewable sources will lead to a direct drop in CO2 emissions which will have desirable environmental effects. Findings obtained in this research can be important for decision makers in managing energy policy, environmental policy and economic growth and development.