Energy efficiency and environmental degradation nexus: evidence from the Quantile-on-Quantile regression technique

Abstract

The world is facing enormous challenge of climate change and global warming due to increased emission level. In order to overcome such challenges, economies are adopting energy efficient techniques to control the carbon emissions and improves environmental sustainability. This study analyses the influencing factors of environmental quality from a global perspective throughout the last three decades. In this regard, advanced time series approaches are used to identify the association between factors such as economic growth, energy efficiency (E.N.E.F.), and carbon emissions – covering global data over the period 1990Q4–2020Q4. From the time series methods, this study observed the stationarity of all variables at first difference. The empirical outcomes also validates the long-run equilibrium relationship between the variables. Due to asymmetric distribution of the variables, this study uses the novel Quantile-on-Quantile (Q.Q.) regression approach, which reveals that increasing economic growth harms environmental quality by increasing the carbon emissions level. However, E.N.E.F. is a prominent factor of environmental sustainability, that reduces the level of carbon emissions in the atmosphere. Employing the pairwise Granger causality test, this study observed the unidirectional causality from economic growth to carbon emissions, while a two-way causal nexus is found between economic growth – E.N.E.F. and E.N.E.F. – carbon emissions. Based on the empirical results, this study suggests that economic growth should be regulated in a sense that it contribute towards the improvement of E.N.E.F., which ultimately leads to reduce the emissions level and promote environmental sustainability.