Fossil fuels consumption and carbon dioxide emissions in G7 countries: Empirical evidence from ARDL bounds testing approach

Abstract

This research determines the intertemporal relationships caused by the coal, oil, and natural gas consumption in the carbon dioxide emission by the G7 countries from 1965 to 2018. Auto-regressive and Distributed Lags models and Bound test were used to detect cointegration and understand the dynamic effect. Due to structural breaks occurred in the variables, two dummy variables for the periods of breaks, 1978 and 1990 were incorporated respectively. Positive causality was identified, in the sense that the consumption of fossil fuels provides an increase in carbon dioxide emissions. Short-term elasticities indicate that an increase of 1 percentage point in the consumption of oil, coal, and natural gas will cause, respectively, an increase of 0.4823%, 0.3140%, and 0.1717% in carbon dioxide emissions. In the long run, the increase of 1 percentage point in the consumption of oil, coal, and natural gas will cause, respectively, an increase of 0.4924%, 0.2692%, and 0.1829% in carbon dioxide emissions. The error correction model (ECM = -0.4739) indicates that 47.39% of a shock in the carbon dioxide emissions variable is resolved in one year and after 2 years, carbon dioxide emissions return to long term equilibrium.

Keywords: ARDL models; Carbon dioxide; Cointegration; Fossil fuels; Structural breaks.