Carbon dioxide emissions and growth of the manufacturing sector: Evidence for China

Reduction of carbon dioxide emissions without negatively affecting the industrial growth is a dilemma for industries in China. On this issue, an empirical study is provided on the relation between carbon dioxide (CO2) emissions and industrial growth in the Chinese manufacturing sector. The ARDL (autoregressive distributed lag) bounds testing and cointegration analysis are applied in a multivariate framework including energy consumption and price from 1980 to 2012. Results show the existence of a long-run equilibrium relationship between carbon dioxide emissions and industrial growth; indicating that application of measures leading to carbon dioxide reduction may not negatively affect the growth of the manufacturing sector. In the short term, there is no causality running from energy consumption to industrial growth. Additionally, there is causality between energy price and energy consumption. However in the long term, industrial growth may affect energy consumption, which in return may have influence on carbon dioxide emissions; suggesting that there is a reduction potential of energy consumption and CO2 emissions in the Chinese manufacturing sector without threatening industrial growth. In effect, some policy suggestions are provided for appropriate measures.