Modeling the nexus between carbon emissions, energy consumption, and economic progress in Pakistan: Evidence from cointegration and causality analysis

Abstract

Developing countries like Pakistan are facing issues of environmental degradation. The use of non-renewable energy consumptions for economic growth sets the ground for environmental degradation, and its consequences cannot be ignored. It is, therefore, necessary to identify such determinants, model the nexus and explore the feedback effect that may play a constructive role in mitigating the environmental issues. This study aims to probe the robust nexus between carbon emission, energy consumption, and economic progress both in bivariate and multivariate models for 1971–2019 in Pakistan. Variables’ robustness and interaction are investigated using the Johansen co-integration, and Auto-regressive Distributed Lag bound testing method for estimating the long-run relationship at the significance level of 5%, respectively. The examined results of Auto-regressive Distributed Lag shows that energy consumption, economic growth, urbanization, research and development, and forest area have a positive and significant impact on carbon emissions of Pakistan in the long run while in the short run urbanization and forest area have found a negative effect on carbon emissions The empirical results of Granger causality are studied in a Vector Error Correction Model framework entail that bidirectional causality exists between energy consumption and CO2 emissions across the three causality tests namely short run, long run, and the strong causality.Furthermore, the results indicate a positive and significant impact of a fast-growing economy and energy consumption on CO2 emissions, suggesting that economic progress and high energy consumptions are barriers to improve environmental quality in the long run and their impact on the environment is inevitable. Based on the estimated results, it is recommended that introducing cautious energy regulating policy by the assessment of traditional old energy resources and related emissions for long-run economic progress would assist towards a low-carbon prospect. Findings further suggest that the government needs a strong green growth policies framework that encourages energy efficiency and technology innovations for renewable energy targets by eliminating the subsidies over fossil fuel, raised to substitute energy conversion as technology innovations are permanent, and minimize the risk of policy volatility.