The impact of natural gas and renewable energy consumption on CO2 emissions and economic growth in two major emerging market economies.

Abstract

For the last three decades, both China and India are considered as the largest emerging market economies in the world. Both of these economies play an essential role in the global economy in terms of economic output and CO2 emissions. Hence, these countries are expected to play an important role in setting up environmental and sustainable development policies. Therefore, our paper aims to examine the role of natural gas and renewable energy consumptions on CO2 emissions and economic growth during 1965-2016 within a multivariate framework. The autoregressive distributed lag bounds testing approach to cointegration and vector error correction model (VECM) is employed to explore the long-run and causal nexus among the natural gas consumption, renewable energy consumption, coal and petroleum consumption, CO2 emissions, and economic growth, respectively. The empirical results show existence of long-run equilibrium association among the variables. The Granger causality results indicate that the short-run bidirectional causality between renewable energy consumption and economic growth in India, while no causality is found between these two variables in China. However, natural gas consumption causes economic growth in China whereas no causality is confirmed in India in the short-run. The findings further suggest that there is long-run bidirectional causality among the considered variables in both countries. Our paper addresses several important policy implications.