Abstract
Our pioneer study is aimed at investigating the role of the service sector in affecting sustainable environment in Pakistan. Using time series data over 1971–2014 and applying an autoregressive distributive lag (ARDL) model with structural break analysis, we establish a long-term equilibrium relationship of carbon dioxide (CO2) emissions with energy consumption, income level, services and trade openness. Our findings support a service-induced environmental Kuznets curve (EKC) hypothesis in Pakistan. The income level sharply raises environmental degradation at the early stage; however, after reaching a certain threshold, it improves environmental quality but at a lower rate. There exists an inverted U-shaped nexus between services and CO2 emissions, which implies that the service sector is less energy-intensive in terms of mitigating pollution in Pakistan. Moreover, the energy consumption has an inverted U-shaped effect on carbon emissions, which implies energy efficiencies and adoption of renewable energy has reduced pollution in the long run. The trade openness increases CO2 emissions in both the short term and long term. The quadratic term of income level has a negatively inelastic impact on CO2 emissions, which implies a very slow rate of improvement in environmental quality. On the other hand, the quadratic term of services shows a highly elastic impact on pollution, which induces the EKC hypothesis. Our robustness checks such as fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (OLS), and Toda and Yamamoto (TY) causality tests further confirm the existence of the service-induced EKC hypothesis in Pakistan. Moreover, there exists a unidirectional causality from energy consumption to CO2 emissions, a bidirectional causal relationship between economic growth and CO2 emissions, and a unidirectional causal linkage between services and CO2 emissions. Lastly, we discuss certain policy implications for designing appropriate environmental and energy policies to mitigate the pollution in Pakistan.
Highlights
Structural changes brought substantial economic growth in the world but they raised the issues of environmental degradation and sustainable development [1]
Linear and non-linear effects of economic growth on environment using ARDL and nonlinear autoregressive distributive lag (NARDL) models. They showed that an N-shaped curve holds in Nigeria. These findings indicate that the environmental Kuznets curve (EKC) theory may not produce expected results due to omitted variable bias, sampling period, econometric methodology, regional dynamics, and type of pollution emissions undertaken in a research study
This study investigated the long-term relationships among energy consumption, income level, services, trade openness, and CO2 emissions in Pakistan over the time period 1971–2014 using ARDL
Summary
Structural changes brought substantial economic growth in the world but they raised the issues of environmental degradation and sustainable development [1]. At the earlier stage of development, economic activities shifted from agriculture to manufacturing in the world; later on, emergence of the service sector showed tremendous growth, becoming the largest sector of the world economy. The contribution of services to world gross domestic product (GDP) and employment level remarkably increased, while the value addition of the agriculture and manufacturing sector to Energies 2020, 13, 526; doi:10.3390/en13030526 www.mdpi.com/journal/energies. Over the last two decades, the valued-added contribution of the service sector to GDP increased from 69% in 1997 to 74% in 2015 in high-income countries, and surged extraordinarily from. According to the International Energy Agency (IEA) [4] report, the transport and building sector accounts for approximately one-half of CO2 emissions from fossil-fuel burning in the world after redistributing emissions from power generation to sectors. The report further indicates that electricity power generation in Asia caused almost a 50% increase in global emission over the period of 2000–2017, and
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