On Causal Interactions between Carbon Emissions, Energy Consumption and Economic Growth: An Evidence from India

Abstract

This country specific study examines the short-run and long-run causal linkages between carbon emissions, energy consumption and economic growth in India for a period of 1971-2011, using Johansen and Juselius multivariate cointegration test, Granger causality test based on Vector Error Correction Model, variance decomposition analysis and impulse response functions. The results reveal that there is strong long-run causality running from energy consumption and economic growth to carbon emissions. We also find a short-run feedback causality between carbon emissions and economic growth. It is also evident from the results that there is no causality between carbon emissions and energy consumption in the short-run and a unidirectional short-run causality running from energy consumption to economic growth. The findings of Variance Decomposition Analysis and Impulse Response Functions reinforce causality results. Since the study supports the "growth hypothesis", the author recommends a policy of comprehensive energy use transformation program wherein the government should subsidize the renewable sources of energy and tax the fossil fuels, and invest heavily in green technology.