Does disaggregated CO2 emission matter for growth? Evidence from thirty countries

This paper investigates the causal relationship between economic growth and aggregated carbon dioxide (CO2) emission; as well as economic growth and disaggregated CO2 emission from burning fossil fuel - coal, oil and natural gas. In addition, the analysis extends the potential impact on economic growth if countries substitute CO2 emission from dirty energy (coal) by emission from relatively cleaner energy (oil and natural gas). The study carries out a panel analysis of 30 countries during 1960-2010. Panel unit root tests, cointegration techniques and causality tests are used to investigate these relationships using panel VAR in first differences framework. The result indicates that there are 'feedback' relationships in all cases except a 'unidirectional' causality running from economic growth to coal induced CO2 emission. Utilizing Wald test with linear restriction the result also finds that countries will be environmentally benefited, if they substitute emission from coal by that of oil and natural gas, that is, if they substitute coal consumption by oil and natural gas consumption. Depending on the findings, the paper suggests some essential policies.