Environmental degradation, economic growth and energy consumption: Evidence of the environmental Kuznets curve in Malaysia

• Published in: Energy policy 2013-09, Vol.60, p.892-905
• Main Authors: Saboori, Behnaz, Sulaiman, Jamalludin
• Format: Article
• Language: English
• Subjects: Air pollution caused by fuel industries; Alternative energy; Applied sciences; Carbon dioxide; Carbon emissions; Causality; CO2 emissions; Coal; Economic data; Economic development; Economic growth; Electric power; electricity; Emissions; Energy; Energy consumption; Energy economics; Energy policy; Energy resources; Energy. Thermal use of fuels; Environmental degradation; Environmental Kuznets curve; Error correction models; Errors; Exact sciences and technology; General, economic and professional studies; General. Regulations. Norms. Economy; greenhouse gas emissions; issues and policy; Malaysia; Metering. Control; Methodology. Modelling; oils; Petroleum industry; Studies
• ISSN: 0301-4215; 1873-6777
• DOI: 10.1016/j.enpol.2013.05.099

This paper tests for the short and long-run relationship between economic growth, carbon dioxide (CO2) emissions and energy consumption, using the Environmental Kuznets Curve (EKC) by employing both the aggregated and disaggregated energy consumption data in Malaysia for the period 1980–2009. The Autoregressive Distributed Lag (ARDL) methodology and Johansen–Juselius maximum likelihood approach were used to test the cointegration relationship; and the Granger causality test, based on the vector error correction model (VECM), to test for causality. The study does not support an inverted U-shaped relationship (EKC) when aggregated energy consumption data was used. When data was disaggregated based on different energy sources such as oil, coal, gas and electricity, the study does show evidences of the EKC hypothesis. The long-run Granger causality test shows that there is bi-directional causality between economic growth and CO2 emissions, with coal, gas, electricity and oil consumption. This suggests that decreasing energy consumption such as coal, gas, electricity and oil appears to be an effective way to control CO2 emissions but simultaneously will hinder economic growth. Thus suitable policies related to the efficient consumption of energy resources and consumption of renewable sources are required. •We investigated the EKC hypothesis by using Malaysian energy aggregated and disaggregated data.•It was found that the EKC is not supported, using the aggregated data (energy consumption).•However using disaggregated energy data (oil, coal and electricity) there is evidence of EKC.•Causality shows no causal relationship between economic growth and energy consumption in the short-run.•Economic growth Granger causes energy consumption and energy consumption causes CO2 emissions in long-run.