Examining the socioeconomic determinants of CO2 emissions in China: A historical and prospective analysis

Abstract

This paper explores the socioeconomic determinants of CO2 emissions in China from a historical and prospective perspective. Through the study, we developed a comprehensive analysis framework, using time series data on China’s economic structure, energy consumption structure, income, urbanization, FDI, and total trade for the period 1980–2014 in order to perform our analysis. Firstly, the results of ADF test indicated that the surveyed variables were stationary and integrated of I(1), a finding that was further confirmed by the results of a KPSS test. Subsequent Johansen cointegration results found that there existed no less than one cointegrating relationship between the surveyed variables, and the results of a VECM model suggested that all of the selected socioeconomic factors exerted important influences in determining the value of the dependent variable, CO2 emissions. The Granger causality tests demonstrated the existence of a bidirectional causal link between CO2 emissions and the economic structure, and between CO2 emissions and the energy consumption structure. A unidirectional causal link was also located that runs from CO2 emissions to GDP, urbanization to CO2 emissions, and CO2 emissions to trade. No causal link was found to exist between CO2 emissions and FDI. In addition, impulse response functions and variance decomposition analysis revealed that the energy consumption and economic structures can be expected to continue to exert strong and significant forecasted impacts on CO2 emissions in the future, while the impact of FDI and total trade is expected to be of increasingly limited magnitude. The impact of GDP is also likely to be evident in the future. These results hold important implications for governmental policy decisions pertaining to the reduction of China’s CO2 emissions.