Energy efficiency and natural gas consumption in the context of economic development in the European Union

Abstract

Our paper evaluates the relationship between energy efficiency (which is the key issue of European climate policy), consumption of the natural gas, and economic development in the European Union.We employ the panel time series data from 1997 to 2011 that covers 26 EU Member States (represented by the countries of the Eurozone). We build and test a multivariate model originating from in the neoclassical growth model and amended to include gross fixed capital and total labour as our explanatory variables. We use the panel cointegration tests and error correction modelling for determining whether there exists a long-term causality between economic growth and natural gas consumption in the EU. Moreover, we aim to derive the existence of the two-way causality between natural gas consumption and economic growth in the EU Member States. Our results show that the relationship between economic development and the consumption of the natural gas is positive, while the relationship between the consumption of the natural gas and economic development in the EU appears to be negative. Our findings might be relevant for formulating the policy framework targeting and increasing energy intensity and efficiency.