On the nexus among carbon dioxide emissions, energy consumption and economic growth in G-7 countries: new insights from the historical decomposition approach

Abstract

This paper investigates the relationship between carbon dioxide emissions, energy consumption and economic growth in the G-7 countries from a historical perspective. To this end, taking time-varying interaction and business cycle into account, we use the historical decomposition method for the first time in the literature. Our results provide evidence that Canada, Italy, Japan and partly the USA need to sacrifice economic growth if they aim to reduce CO2 emissions by decreasing fossil-based energy use. This situation is not valid since the early 1990s for France, throughout the analysis period for Germany and a few exceptions in all periods for the UK. Furthermore, empirical results provide evidence contrary to the EKC hypothesis for Canada, Germany, Japan, the UK and the USA. We found BC-shaped and N-shaped curves for France and Italy, respectively. Although the EKC hypothesis is not valid for Germany and the UK, economic growth has no damaging effect on environmental quality. Also, this effect seems to be cyclical for the USA.