The effect of carbon dioxide emission and the consumption of electrical energy, fossil fuel energy, and renewable energy, on economic performance: evidence from Pakistan

Abstract

Energy affects the economic growth and development of a country. Renewable energy has become an important part of the world’s energy consumption. The use of fossil fuel energy contributes to global warming and carbon dioxide emissions, and has a detrimental effect on the environment. The long-run and short-run causality relationships between electric power consumption, renewable electricity output, renewable energy consumption, fossil fuel energy consumption, energy use, carbon dioxide emissions, and gross domestic product per capita for Pakistan over the period of 1990–2017 were investigated in this paper using the autoregressive distributed lag bounds testing approach to cointegration. The augmented Dickey–Fuller unit root test and the Phillips–Perron unit root test were used to check the stationarity of the variables, while the Johansen cointegration test was applied to check the robustness of the long-run relationships. The Granger causality test under the vector error correction model extracted during the short-run estimation showed a unidirectional relationship among all variables except for the relationship between gross domestic product per capita and carbon dioxide emission, which was bidirectional (feedback hypothesis). The evidence showed that in the long run, carbon dioxide emissions, electric power consumption, and renewable electricity output had a positive and significant relationship with the gross domestic product per capita, while the relationship of renewable energy consumption, energy use, and fossil fuel energy consumption with the gross domestic product per capita had a negative effect. Overall, the long-run effects of the variables were found to have a stronger effect on the gross domestic product per capita than the short-run dynamics, which indicated that the findings were heterogeneous. The evidence suggests that the government of Pakistan should take steps to enhance the use of renewable energy resources to resolve the energy crisis in the country and introduce new policies to reduce carbon dioxide emissions.