Empirical Link between Economic Growth, Energy Consumption and CO2 Emission in Australia

This study investigates the causal relationship between economic growth, energy consumption and CO2 emission in Australia using time series data for the period of 1965–2007. Johansen cointegration technique is employed to examine the long run relationship between economic growth, energy consumption and CO2 emission. Results suggest that there is no cointegrating relationship among the variables; economic growth, energy consumption and CO2 emission in Australia. VAR in first differences is conducted. Generalized impulse response shows that energy consumption has a quite persistent positive impact on CO2 emission but GDP doesn’t have any impact on it. The study also shows bi-directional causal link between energy consumption and economic growth. However there is no causal link between CO2 emission and economic growth. Findings indicate that Australia is still in a comfortable position to pursue pro-growth policies without being over-concerned about CO2 emission. Keywords: Australia, cointegration, CO2 emission, energy consumption, economic growth