RELATIONSHIP BETWEEN ENERGY USE, INCOME AND CO₂ EMISSION IN INDIA: AN ARDL APPROACH

Abstract:

The study attempts to examine and test whether or not there is a long-run relationship between CO₂ emissions and GDP. Furthermore, the Environment Kuznets Curve hypothesis is being tested to see if there is any evidence of a non-linear relationship between the two. The current study employs a multivariate framework that includes CO₂ emissions (in kt), GDP (constant 2010 US dollar), GDP squared, and energy use (kg of oil equivalent per capita). The study employs annual data from World Bank Group's World Development Indicators database for the aforementioned variables from 1971 to 2014 for empirical analysis. We apply appropriate econometric techniques to our model, with CO₂ emission serving as regressand and GDP, GDP squared, and energy consumption serving as regressors. The study finds in India, both the long run and short run ARDL estimates of GDP and GDP squared point to an EKC. The short run GDP or income elasticity of CO₂ emission, on the other hand, is slightly lower than the long run income elasticity. The positive GDP coefficient and negative GDP squared coefficient show that India is following the inverted U-shaped EKC, in which environmental degradation increases with increased national income and then decreases with increased income effect and use of other renewable resources for consumption and production. However, the positive and significant coefficient of energy use or consumption shows that with increased demand for energy, CO₂ emissions will rise steadily in the future. Furthermore, after reaching a certain income level, the increased income effect may outweigh the increased energy consumption effect, and CO₂ emissions may begin to fall from a certain upper level.JEL Classifications: C5; Q4: Q5