Empirical Link Between Economic Growth, Energy Consumption and CO 2 Emission in Australia

Abstract

This study investigates the causal relationship between economic growth, energy consumption and CO 2 emission in Australia using time series data for the period of 1965–2007. Johansen cointegration technique is employed to examine the long run relationship between economic growth, energy consumption and CO 2 emission. Results suggest that there is no cointegrating relationship among the variables; economic growth, energy consumption and CO 2 emission in Australia. VAR in first differences is conducted. Generalized impulse response shows that energy consumption has a quite persistent positive impact on CO 2 emission but GDP doesn’t have any impact on it. The study also shows bi-directional causal link between energy consumption and economic growth. However there is no causal link between CO 2 emission and economic growth. Findings indicate that Australia is still in a comfortable position to pursue pro-growth policies without being over-concerned about CO 2 emission.