Energy consumption, economic growth and environmental sustainability: Evidence from China

Abstract

This paper mainly investigated the interactions between energy consumption, economic growth, and the environment in China. The carbon dioxide emission intensity variable was introduced to represent the environmental variable. Data covered the period from 1965 to 2016. Coal, oil, and hydroelectricity use, real GDP (gross domestic product), and the environment were cointegrated. Coal, oil, and hydroelectricity consumption and real GDP were weakly exogenous but emissions were not. In the long run, a 1% increase in hydroelectricity consumption reduced CO2 emission intensity by 2.15%. However, a 1% increase in coal and oil consumption increased CO2 emission intensity by 2.89% and 0.76%, respectively. The impact of coal consumption on emissions is much larger than that of oil consumption. Coal and hydroelectricity consumption appeared to have a lagged effect on carbon emissions. Also, in the long run, coal, oil, and hydroelectricity consumption had impacted GDP and vice versa. The economy appeared to heavily depend on coal consumption. The study suggests a positive long-run unitary relation between oil consumption and the economy. Real GDP positively impacted CO2 intensity in the short run but the long-run effect was negative. This result is consistent with the post-materialist value theory and prosperity hypothesis, both of which imply that people’s environmental concerns will increase as income increases. Therefore, reducing carbon emissions can be achieved without sacrificing economic growth in the long run.