Energy Consumption, Pollutant Emissions and Economic Growth: China Experience

This study examined the relationship between carbon dioxide emission, energy consumption and economic growth in China. The period in view is 1971 to 2008 and the study introduced industrialization and capital as additional variables. Based on a VECM, we tested Granger causality after finding the cointegration among the variables. The result of the VECM shows a causal relationship between CO2 emission and economic growth with causality running from CO2 emission to economic growth. We also found a causal relationship between industrialization and economic growth with causality running from industrialization to economic growth. The important policy implication resulting from this analysis is that government can pursue the preservation and careful management of the environment by curtailing energy use for development purposes without creating harsh effects on economic growth. There is need for mitigation of emission by developing of carbon markets, taxes on carbon and subsidies to encourage faster technological progress. The study suggests that energy and environmental policies should recognize the differences in the energy consumption-growth nexus in order to maintain sustainable economic growth in China.