Empirical analysis of CO2 emissions and sustainable use of energy sources in Pakistan.

Abstract

Pakistan is experiencing increasing CO2 emissions in contrast with other regions of the world. The country is also facing the problems of low economic growth, energy poverty, and environmental pollution. The objective of the study is to analyze economic growth of Pakistan and obtain some alternate sources of production for sustainable environment. Time series data of Pakistan from 1985 to 2018 is used. In order to estimate direct and substitution effect among energy and non-energy factors on economic growth, translog functional form is used. The presence of multicollinearity among explanatory variables approves to employ ridge regression. Capital per worker has the highest elasticity (0.1531) among all variables followed by consumption of oil (0.0571), natural gas (0.0333), technology (0.0329), and hydroelectricity (0.02). Average output elasticity for oil, natural gas, hydroelectricity, capital per worker, and technology are 0.4474, 0.3127, 0.433, 1.0037, and 0.2309, respectively. Technical progress of variables is ranked as capital per worker, oil consumption, natural gas consumption, hydroelectricity, and technology. Relatively lower but efficient substitution between oil and natural gas provides opportunity to save huge foreign exchange on import of oil. Investment on capital per worker in transport, power, fertilizer, and industrial sectors can reduce the demand of oil and natural gas which would eventually lower carbon dioxide emissions in the country. Increasing 10% investment on capital/worker would mitigate 208.283 million tons of carbon dioxide. Energy inputs are substitutes; therefore, mega hydropower projects and small renewable projects may be launched to cope with energy poverty and environmentally sustainable challenges.