sustainability

Article
The Impact of Energy Consumption and Economic
Growth on Carbon Dioxide Emissions
Oluyomi A. Osobajo 1, * , Afolabi Otitoju 2 , Martha Ajibola Otitoju 3 and Adekunle Oke 1
1 Aberdeen Business School, The Robert Gordon University, Garthdee Road, Aberdeen AB10 7QE, UK;
[email protected]
2 Renewable Energy Consultant, Trinomial Solutions Ltd., Aberdeen AB12 3DZ, UK;
[email protected]
3 Repsol Sinopec Resources UK Limited, Holburn Road, Aberdeen AB10 6BZ, UK; [email protected]
* Correspondence: [email protected]




Received: 29 July 2020; Accepted: 17 September 2020; Published: 25 September 2020


Abstract: This study explored the effect of energy consumption and economic growth on CO2
emissions. The relationship between energy consumption, economic growth and CO2 emissions was
assessed using regression analysis (the pooled OLS regression and fixed effects methods), Granger
causality and panel cointegration tests. Data from 70 countries between 1994–2013 were analysed.
The result of the Granger causality tests revealed that the study variables (population, capital stock
and economic growth) have a bi-directional causal relationship with CO2 emissions, while energy
consumption has a uni-directional relationship. Likewise, the outcome of the cointegration tests
established that a long-run relationship exists among the study variables (energy consumption and
economic growth) with CO2 emissions. However, the pooled OLS and fixed methods both showed
that energy consumption and economic growth have a significant positive impact on CO2 emissions.
Hence, this study supports the need for a global transition to a low carbon economy primarily through
climate finance, which refers to local, national, or transnational financing, that may be drawn from
public, private and alternative sources of financing. This will help foster large-scale investments in
clean energy, that are required to significantly reduce CO2 emissions.

Keywords: climate change; climate finance; economic growth; CO2 emissions; energy consumption

1. Introduction
Environmental issues have taken leading discussions in our contemporary times in both developing
and developed economies due to environmental deterioration. This further raises concerns about
climate change and global warming, which arises mainly from the emission of greenhouse gases [1].
These changes are often linked to natural causes (i.e., continental drifts, volcanic activities, solar
radiation and ocean currents) and direct and indirect human activities, which affect the global
atmospheric composition and variability of the natural climate. However, scholars have argued that
the increase in human activities due to the emergence of industrialization, the increase in the growth of
the global population and the need to meet up with such transformations are the main causes of climate
change [2,3]. Also, human activities such as deforestation for agricultural and commercial purposes,
burning of fossil fuel and changes in the use of land due to population growth are contributing
significantly to a surge in greenhouse gas emissions. Despite the contribution of industrialization in
promoting economic growth by increasing the amount of goods and services produced, shaping lives
and making the society a better place, it left us with an issue of increasing greenhouse emissions.
In today’s world, the demand for energy due to the growing population and urbanization is
on the increase [4]. This is essential to keep pace with the rapid disruptions and transformation in

Sustainability 2020, 12, 7965; doi:10.3390/su12197965 www.mdpi.com/journal/sustainability

Sustainability 2020, 12, 7965 2 of 16

global economies. Energy is pivotal to human lives and to the social, economic and environmental
development of the global economy. It is likely impossible to produce, deliver, or use mainstream
commodities without consuming energy. Hence, Yildirim [5] observed that insufficient energy would
negatively impact the performance of different sectors of the economy such as transport and a country’s
social life. However, the increase in the consumption of energy is becoming a threat to the global
ecosystem. This has given rise to more prolonged droughts, rising sea levels and the rising occurrence
of heatwaves, which are of grave negative impacts on the environment. Although there is an awareness
about the consequences of human activities, Urry [3] observed that there is a rise in the emission level
of greenhouse gases such as Carbon dioxide (CO2 ) into the atmosphere.
Likewise, the need for economic growth has led to environmental degradation, which is often a
resultant effect of development and industrialization in both developing and developed countries. The
economic growth of any country is dependent on different factors, which may impose negative impacts
on the environment such as unsustainable natural resource exploitation, environmental pollution
and climate change [6]. Also, the rapid increase in urbanization in many countries has fast-tracked
economic growth with the resultant effect of an increase in energy consumption. Hence, the key issue
that many countries are facing is the level of carbon dioxide in the environment that is increasing
significantly due to energy consumption and economic growth. According to Kasman and Dunman [7],
a majority of the energy originates from fossil fuels such as coal and natural oil and gas, which also has
resulted in the increase of CO2 emissions level. This has further prompted scholars to argue that CO2
emission is invisible, and its effect may take years to materialise [8].
Although several factors such as population size, the carbon intensity of energy, economic growth,
clean nuclear energy use, fossil energy consumption, renewable energy, urbanization and other air
pollutants (PM10, PM2.5, SO2, NO2, CO, B(a)P) [9,10] have been identified to be responsible for the
growth in the global CO2 emissions level, the aim of this study is to explain the impact of energy
consumption and economic growth on CO2 emissions. Given the rapid global economic growth
resulting in increased energy consumption, understanding the relationship between these variables
is essential to ensure a balance between energy consumption, economic growth and CO2 emissions.
Also, it will help direct focus on addressing the threats (i.e., preventing a 40◦ C world) posed by the
changes in global climate.

2. Literature Review

2.1. Overview of Greenhouse Gas Emissions

Greenhouse gases have been categorised as atmospheric gaseous constituents, both anthropogenic
and natural. These constituents are known to imbibe and emit radiation at certain wavelengths within
the spectrum of infrared radiation emitted by the clouds, atmosphere and the surface of the Earth.
Hossain [11] and Paiva et al. [12] asserted that greenhouse gases remain a significant cause of climate
change and global warming. This is consistent with Resnik’s [13] argument that the adverse effects of
climate change due to greenhouse gases on human health, the environment and society are profuse.
Hence, Meltzer [14] concluded that over 150,000 deaths per year are attributed to the resultant effects
of environmental pollution. Although there are many greenhouse gases, CO2 is attracting more
recognition due to its persistence in the atmosphere and for its use as a baseline for estimating the
global warming potential (GWP) of other greenhouse gases [15–17]. Rahman [18] added that between
1990 to 2013, the greenhouse gas concentration has increased by 34% with over 80% of this figure being
a resultant effect of CO2 emissions. This is in line with Amri’s [19] assertion that CO2 emissions have
increased significantly from 67 million metric tons to 134 million metric tons. Considering that the
rising CO2 emission level remains a global concern [18,20], it is crucial to explore the drivers of CO2
emissions [21,22]. Based on previous studies (Table 1), one could conclude that energy consumption
and economic growth are the two most mentioned drivers of CO2 emissions.
Sustainability 2020, 12, 7965 3 of 16

Table 1. Drivers of CO2 emissions (summarised from the literature).

Authors CO2 Emissions Drivers

Stolyarova [23] GDP and energy consumption.
Sharma [24] Per capita GDP and urbanization.
Cetin and Ecevit [25] Energy consumption and urbanization.
Keho [26] The share of industrial sector in GDP, per capita income and trade openness.
Zakarya et al. (2015) [27] GDP, energy consumption and Foreign direct investments.
Ab-Rahim and Xin-Di [28] Energy consumption, trade openness and economic growth.
Jiang and Guan [29] GDP per capita, population, carbon intensity of energy and GDP energy intensity.
Jiang et al. [30] Social consumption and consumption behaviour.
Economic growth, population size, fossil energy consumption, clean nuclear
Talbi [9]
energy use, renewable energy and waste energy conversion.
Wang and Lin [10] Urbanization, energy structure, GDP and energy intensity

2.2. The Nexus of Energy Consumption, Economic Growth and CO2

In recent times, several studies have focused on understanding the link between energy
consumption, economic growth and CO2 emissions [5]. Nevertheless, the relationship that exists
between these variables has been explained in different ways [18,20]. Table 2 present a synopsis of
preceding empirical studies implemented to explain the link between energy consumption, economic
growth and CO2 emissions.

Table 2. Synopsis of preceding empirical studies on the relationship between energy consumption,
economic growth and CO2 emissions (authors generated).
Author Time Method Country Results
There exists an inverted u-shaped relationship between CO2 emissions
Parametric and and urbanisation. However, there is a significant relationship between
Abdallah and MENA
1990–2014 semi-parametric panel fixed GDP and EC with respect to CO2 emissions. The population shows a
Abugamos [31] Countries
effects models positive impact, but only significant at 5% using a semi-parametric
model.
Error correction model and
Mizra and A bidirectional causality relationship exists between EC and GDP, CO2
1971–2009 Johansen–Juselius Pakistan
Kanwal [32] and GDP, CO2 and EC, in both the short and long run.
Cointegration
There exists a long-run relationship between energy consumption, GDP
Nairn et al. [33] 1971–2011 ARDL bounds test India and CO2 emissions. Besides at both aggregated and disaggregated
levels, there is no feedback causality in the short and long run.
Johansen Fisher and Pedroni There exists a relationship between GDP, energy consumption and CO2
Rehman and SAARC
1960–2015 cointegration, FMOLS and emissions. Also, there exists an inverted U-shaped relationship
Rashid [34] Countries
DLOS between GDP and CO2 emissions.
A long-run causality relationship exists between GDP and EC and CO2
Esso and Keho Sub-Saharan emissions. However, a short-run causality relationship exists between
1971–2010 Bounds Testing
[17] Countries the variables for Ghana, the Democratic Republic of Congo, Benin,
Nigeria and Senegal.
Fixed effects OLS, DLOS,
A long-run relationship exists among the variables used. Also, energy
Dogan and Emirmahmutoglu–Kose
1995–2011 25 EU countries consumption increases CO2 emissions while tourism and real income
Aslan [35] Granger causality test and
lessen it.
FMOLS
There exists a long-run relationship between energy consumption, GDP,
EU member
Kasman and FMOLS and Granger CO2 emissions, urban population and trade openness. Likewise, there
1992–2010 and candidate
Dunman [7] causality exists an inverted U-shaped relationship between CO2 emissions and
countries
real income.
Saidi and Generalised method of CO2 has a significant positive impact on energy consumption. Likewise,
1990–2012 58 countries
Hammami [20] moments economic growth has a positive impact on energy consumption.
There exists a long-run relationship between energy consumption, GDP
Greece, and CO2 emissions. Likewise, positive and significant relationships
Dritsaki and
1960–2009 ECM and FMOLS DOLS Portugal and exist between EC and CO2 emissions and between GDP and energy
Dritsaki [36]
Spain. consumption for Greece and Spain at a 1% significance level and at a
10% significance level for Portugal.
Sustainability 2020, 12, 7965 4 of 16

Table 2. Cont.
Author Time Method Country Results
Unidirectional causality between EC and GDP, unidirectional causality
Hwang and
1965–2006 Granger causality test Indonesia between CO2 emissions and GDP and bidirectional relationship
Yoo [37]
between CO2 emissions and EC.
A bidirectional causality relationship exists between energy
Generalised method of MENA
Omri [38] 1990–2011 consumption and GDP. Also, a unidirectional causality relationship
moments Countries
exists between CO2 emissions and GDP.
There exists a short-run relationship between CO2 emissions and
Granger Causality, income. Also, there exists a Granger causality relationship between CO2
Alam et al. [39] 1971–2006 Generalised Impulse India emissions and EC both in the short run and long run. Besides this, there
response function exists no causal relationship between energy consumption and income.
However, a short-run relationship exists using the GIRF method.
In the long-run, energy consumption contributes to CO2 emissions.
Bounds Test, VEC model Trade openness has a negative impact, while urbanization and GDP
Hossain [40] 1960–2009 Japan
and Johansen–Juseliues have a positive impact. However, it is not statistically significant in the
long run.
A long-run causality relationship exists between GDP and EC and CO2
Wang et al. [16] 1995–2007 Granger causality China emissions. Likewise, a U-shaped relationship exists between CO2
emissions and GDP.
Menyah and Both short-run and long-run relationships exist between capital, energy
Wolde-Rufael 1965–2006 Granger causality and ARDL South Africa consumption, labour and CO2 emissions. Also, a positive and
[41] significant relationship exists between GDP and CO2 emissions.

Note: GDP = Economic growth and EC = Energy consumption.

As evident from these studies, scholars have focused on different periods and countries, while using
different energy usage proxy variables. This has given rise to some inconsistencies in the findings and
results across these studies [35,42]. Hence, the different studies analysed suggest that there is a need to
take policy-related actions to address these outcomes [11,17]. It is, therefore, not surprising that efforts
are being made at the global scene to further prevent the effects of CO2 emissions by fostering a low
carbon economy [1,43].

2.3. The Role of Climate Finance in the Transition to a Low Carbon Economy
Organisations such as the United Nations (UN) and the Intergovernmental Panel on Climate
Change (IPCC) have taken different actions and measures in addressing climate change issues [3].
Worth mentioning is the 13th Conference of Parties (COP) held in 2007 at Bali in which the stakeholders
presented finance as a pivotal factor to address climate change issues [44]. Thus, the emergence of
the concept of “climate finance”. Even though the concept lacks a generally accepted definition, it is
perceived as the resources invested in climate change mitigation and adaptation measures [44,45].
The 2009 COP held in Copenhagen further affirmed the importance of climate finance in combating
global climate change. This led to the generation of over $30 billion in aid between the period of 2010
to 2012 from developed countries to developing economies [14]. Also, an additional mobilization
for $100 billion a year by 2020 was proposed by developed economies to developing economies.
This is scheduled to extend until 2025. This is in line with the argument by Steckel et al. [46] that
even though most of the CO2 emissions come from developed countries due to industrialization, it is
essential to involve both the developing and emerging economies in the fight against the reduction of
global emissions.

3. Materials and Methods

The aim of this study was to explore the impact of energy consumption and economic growth
on CO2 emissions. As a result, quantitative data for this study was sourced from the World Bank
(World development indicators), a reliable and credible database. It is the primary World Bank collection
of development indicators, compiled from officially recognised international sources. In addition,
it presents the most accurate and current global development data available and includes national,
regional and global estimates. The data was analysed and examined quantitatively using Granger
causality to fulfil the study aim and allowed for conclusive and reliable findings [36,47].
Sustainability 2020, 12, 7965 5 of 16

Definition of Variables and Model

To achieve the study aim, the dependent variable is CO2 emissions (assumed to be caused or
influenced by other factors), while energy consumption, economic growth, population and capital
stock are independent variables [48,49] as shown in Table 3.

Table 3. Dependent and independent variable synopsis.

Name Description Eviews Code

CO2 emissions CO2 emissions in kilo tonne (kt) CO2
Energy consumption Energy use (kg of oil equivalent per capita) ENRGY_CONSC
Economic growth GDP growth (annual %) GDP
Population Population total POP
Capital stock Gross fixed capital formation (constant 2010 US$) CAP_FORM

The independent variables are briefly defined below:

GDP growth (% annual): It measures a country’s economic performance, which is determined by
its annual percentage growth from one year to the next. There has been an increase in CO2 emissions
due to the persistent rise in land clearance and energy use resulting from growth through urbanization
and industrialization. Hence, we expect a positive relationship between the variables. This variable
has also been used in previous literature [5,50].
Energy consumption: It measures the energy use that is obtained through fossil fuel from oil
and coal. The unit of measurement for energy use was taken to be kg of oil equivalent per capita,
which measures energy consumption per head of the population of a country. Due to the increase
in energy consumption, the CO2 emission level is expected to increase also. Thus, we expect a
positive relationship. This variable has been included in studies conducted by Esso [17] and Saidi and
Hammami [20].
Capital Stock: To measure capital stock, this study employed the Gross fixed capital formation
(constant 2010 US dollar), which is essential to any country’s economic growth. This study
expects a positive relationship because an increase in capital stock will result in an increase in
CO2 emissions [38,47].
Population: This variable accounts for the total number of people living in a country at a point in
time. A rise in a country’s population will give rise to an increase in deforestation, land clearances for
commercial and/or agriculture purposes and energy use (fossil fuel). These actions significantly add to
global CO2 emissions. Hence, we do expect a positive relationship between the variables [34,51].
To test the effects of the independent variables on the dependent variable, longitudinal data [52]
that covered a 20 year period, between 1994 and 2013 for 70 countries (Table 4) was collected from the
World Bank database. This avails the authors of the opportunity to establish changes that may have
occurred over the time horizon covered.

Table 4. List of countries considered for the study.

Argentina, Arab Republic, Austria, Armenia, Azerbaijan, Australia, Bangladesh, Belgium, Brazil, Bulgaria,
Bhutan, Canada, Chile, China, Congo, Cote d’Ivoire, Colombia, Costa Rica, Czech Republic, Democratic
People’s Republic, Egypt, Ethiopia, France, Finland, Germany, Georgia, Greece, Ghana, Guatemala, India,
Indonesia, Iran, Iraq, Islamic Republic, Israel, Italy, Japan, Korea, Kenya, Morocco, Mongolia, Mexico,
Mozambique, Malaysia, Mauritius, Nigeria, Norway, Netherlands, New Zealand, Pakistan, Paraguay, Peru,
Philippines, Poland, Portugal, Romania, Republic, Russian Federation, Switzerland, Spain, Sweden, South
Africa, Syrian Arab Republic, Sri Lanka, Tanzania, Thailand, Turkey, Tunisia, United Kingdom, United States,
Vietnam and Zambia.

Using a four-step process, the gathered data was analysed using Granger causality, cointegration
tests and a linear regression model. The first step ascertained the stationarity and order of integration
Sustainability 2020, 12, 7965 6 of 16

among the study variables using the unit root test. In the second step, the long-run relationship
between the study variables was examined using the cointegration tests. The third analysed the
causal relationship between the study variables using the Granger causality test. The fourth involved
investigating the effect of the independent study variables on CO2 emissions using the regression
analysis method. The regression model is therefore as stated below:

yit = β0 + β1xit + β2xit . . . . . . . . . βnxit + dt + ai +uit (1)

where:

y = Dependent variable
x = Independent variable
β0 = Constant
β1, β2, βn = Coefficient of x1, x2 and xn respectively.
dt = dummy variable
uit = error term
ai = unobserved heterogeneity
t = Time
i = Country.

It is worth stating that this study did not include dummy variables. This is because behaviour is
assumed not to vary over time. Also, the study employed the fixed effects model alongside the pooled
OLS to address unobserved heterogeneity concerns.
Hence, the regression model is rewritten as:

(CO2 )it = β0 + β1GDPit + β2ENRGY_CONSCit + β1CAP_FORMit + β1POPit + uit (2)

Nevertheless, the study variables were altered to take into consideration the natural logarithm for
estimation. Hence, obtaining elasticity interpretation besides the growth rate in GDP. The analysis was
carried out using Eviews 9.5 software.

4. Results

4.1. Descriptive Statistics

The obtained values for CO2 emissions range between 212.69 to 10249463 with a positive skewness
that is greater than 0 (normal distribution for skewness stands at 0). This suggests that the distribution
has a long right tail. Likewise, the CO2 Kurtosis value is 41.3 and is greater than 3 (normal distribution
for kurtosis stands at 3). This suggests that the distribution is peaked. However, Table 5 revealed that
the data is not distributed normally as the CO2 P-value, which stands at 0 is less than the significant
levels of 1%, 5% and 10% proposed for the study. Hence, we reject the null hypothesis (H0).
The GDP values as revealed in Table 5 range between −33.10% and 54.16% with a 0.86 skewness
value. This indicates that GDP is slightly right-tailed. Also, it has a kurtosis value of 22.80. This further
suggests that it is peaked. Besides this, with a probability of 0, the Jarque–Bera value remains high.
Hence, the null hypothesis (H0) is rejected using a significance level of 1%, 5% and 10%.
Table 5 reveals that the value of energy consumption ranges between 125.79 and 8441.2 with a
1.15 skewness value. This indicates that energy consumption is right-tailed. Also, it has a kurtosis
value of 3.6. This further suggests that it is peaked. Besides this, with a probability of 0, the Jarque–Bera
value remains high. Hence, the null hypothesis (H0) is rejected using a significance level of 1%, 5%
and 10%.
Sustainability 2020, 12, 7965 7 of 16

Table 5. Synopsis of descriptive statistics.

Variables Mean Median Maximum Minimum Std. Dev Skewness Kurtosis Jarque–Bera Probability Sum Sum Sq. Dev Observations
ENRGY_C 2178.255 1474.045 8441.185 125.7875 1931.095 1.148612 3.589788 324.3803 0.000000 2,887,780 4.77 × 109 1384
GDP 4.011148 4.000000 54.15777 −33.10084 4.600474 0.861933 22.79908 22,595.89 0.000000 4683.724 21,033.41 1373
CO2 351,706.8 70,743.76 10,249,463 212.6860 991,655.0 5.770660 41.29187 93,035.79 0.000000 4.85 × 108 1.35 × 1015 1396
CAP_FORM 1.92 × 1011 4.77 × 1010 3.56 × 1012 3.42 × 108 4.49 × 1011 4.649739 27.03661 34,125.27 0.000000 2.36 × 1014 2.47 × 1026 1233
POP 79,996,313 27,192,132 1.36 × 109 514,877.0 2.01 × 108 5.123719 29.44615 46,923.84 0.000000 1.08 × 1011 5.57 × 1019 1400
Sustainability 2020, 12, 7965 8 of 16

Also, Table 5 reveals that the values for capital formation range between 3.42e + 08 and 3.56e + 12
with a 4.95 skewness value. This means that capital formation is right-tailed. Also, it has a kurtosis
value of 30.4 and a mean value that is greater than the median. This further suggests that it is peaked.
Besides this, with a probability of 0, the Jarque–Bera value remains high. Hence, the null hypothesis
(H0) is rejected using a significance level of 1%, 5% and 10%.
Furthermore, Table 5 reveals that the population values range between 514877 and 1.36e + 09 with
a 5.12 skewness value. This means that the population is right-tailed. Also, it has a kurtosis value of
29.4 and a mean value that is greater than the median. This further suggests that it is peaked. Besides
this, with a probability of 0, the Jarque–Bera value remains high. Hence, the null hypothesis (H0) is
rejected using a significance level of 1%, 5% and 10%.

4.2. Result of Correlation Analysis

Table 6 reveals that there exists a positive relationship between the study variables and CO2 .
The highest value emerges from the capital formation (i.e., 0.89) having a positive and strong correlation,
while GDP has the lowest value (i.e., 0.07) having a positive but weak correlation. Also, revealed in the
table are different relationship types that exist between the study variables.

Table 6. Result of correlation matrix.

Variables ENRGY_C GDP CO2 CAP_FORM POP

ENRGY_C 1.000000 −0.258039 0.266449 0.395075 −0.121009
GDP −0.258030 1.000000 0.067149 −0.040234 0.194128
CO2 0.266449 0.067149 1.000000 0.889258 0.675107
CAP_FORM 0.395075 −0.040234 0.889258 1.000000 0.454021
POP −0.121009 0.194128 0.675107 0.454021 1.000000

4.3. Multicollinearity Test

Table 7 shows that all the study variables have a correlation coefficient that is less than 1.
This means that there exists no high correlation between the study variables. Hence, the absence
of multicollinearity.

Table 7. Independent variables correlation coefficient.

Variables ENRGY_C GDP CAP_FORM POP

ENRGY_C 1.000000 −0.258030 0.395057 −0.121009
GDP −0.258030 1.000000 −0.040234 0.194128
CAP_FORM 0.395075 −0.040234 1.000000 0.454021
POP −0.121009 0.194128 0.454021 1.000000

4.4. Unit Root Test

Table 8 presents the study variables unit root test outcomes at the level and first difference. H0 is
identified as the unit root and it is perceived as non-stationary, while H1 is termed stationarity. The
table reveals that capital formation, energy consumption, population and CO2 emissions are stationary
at I (1). However, GDP is stationary at I (0).
Using a 5% significance level at both level and first difference, the result reveals that the null
hypothesis is accepted at level (for IPS), while it is rejected at the first difference for both (LLC and IPS).
This is because the significance level at 5% (0.05) at first difference is greater than the P-value of 0.00;
hence, at I (1), LCO2 is classified as a stationary variable. Also, using a significance level of 5% (0.05),
Sustainability 2020, 12, 7965 9 of 16

the null hypothesis is rejected because the significance level is greater than the P-value of 0.00. At I (0),
LGDP is termed a stationary variable.

Table 8. At level unit root test–CO2.

Method Stage LENRGY_CONSCLGDP LCO2 LCAP_FORM LPOP

IPS Level 0.8871 0.0000 0.9999 0.9992 0.9737
LLC Level 0.0284 0.0000 0.0033 0.0017 0.0000
IPS 1st Difference 0.0000 0.0000 0.0000 0.0000 0.0001
LLC 1st Difference 0.0000 0.0000 0.0000 0.0000 0.0219
IPS = Im, Pesaran and Shin W-stat, and LLC = Levin, Lin and Chu.

Table 8 presents the unit root tests at the level and first difference. Using a 5% (0.05) significance
level at both level and first difference, the result reveals that the null hypothesis is accepted at
level (for IPS), while it is rejected at the first difference for both (LLC and IPS). This is because the
significance level is greater than the P-value of 0.00; hence, at I (1), LENERGY_CONSC is classified as a
stationary variable.
Likewise, using a significance level of 5% (0.05), Table 8 reveals that at I (0), LCAP_FORM is
not stationary for IPS. However, at I (1), it is stationary for both unit root tests. This is because the
significance level is greater than the P-value of 0.
At I (0), LPOP is not stationary for IPS using a 5% significance level as shown in Table 8. However,
at I (1), it is stationary for both unit root tests. This is because the significance level is greater than the
P-value of 0. Hence, the null hypothesis is rejected.

4.5. Cointegration Test

Cointegration establishes the long-run relationship between two or more study variables. Hence,
some pairs of variables that are not identical could move together. The alternative hypothesis is
cointegration, while the null hypothesis is no cointegration based on the results from the Pedroni and
Kao cointegration test as shown in Table 9. Most of the variables indicate that the null hypothesis
should be rejected, thus, there exists a long-run relationship among the study variables. Hence, they
are cointegrated. This is supported by the findings of Esso and Keho (Esso 2016).

4.6. Granger Causality Tests

Given that a long-run relationship exists between the study variables based on the cointegration
test results, a further test was carried out using the Granger causality test. The Granger causality test
focuses on examining and assessing if any causal relationship exists among the study variables as
shown in Table 10. The study outcome is in line with Yang and Zhao (2017) findings.

4.7. Regression Analysis

All the study variables are positively significant at significance levels of 1%, 5% and 10%
significance. This is because all the study variables’ P-values are lesser than 0.01, 0.05 and 0.10,
respectively. Hence, on average, holding the other variables constant, an increase in GDP will result in
an increase in CO2 emissions by 1.02%. Also, an increase in energy consumption by 1% will result
in a 0.88% increase in CO2 emissions. Likewise, a rise in capital stock by 1% will give rise to a 0.29%
increase in CO2 emissions, while a 1% increase in population will give rise to a 0.78% increase in CO2
emissions as shown in Table 11.
Sustainability 2020, 12, 7965 10 of 16

Table 9. Synopsis of Cointegration Tests.

Type of Test Specification Trend Method Probability Decision

Within Dimension
Pedroni Intercept Panel rho-Statistic 1.0000 Accept
Panel v-Statistic 0.9999 Accept
Panel ADF-Statistic 0.0000 Reject
Panel PP-Statistic 0.0029 Reject
Between Dimension
Group rho-Statistic 1.0000 Accept
Group ADF-Statistic 0.0000 Reject
Group PP-Statistic 0.0000 Reject
Intercept and Trend Panel rho-Statistic 1.0000 Accept
Panel v-Statistic 0.9945 Accept
Panel ADF-Statistic 0.0000 Reject
Panel PP-Statistic 0.0188 Reject
Between Dimension
Group rho-Statistic 1.0000 Accept
Group ADF-Statistic 0.0000 Reject
Group PP-Statistic 0.0000 Reject
No Intercept or Trend Panel rho-Statistic 0.9998 Accept
Panel v-Statistic 1.0000 Accept
Panel ADF-Statistic 0.0072 Reject
Panel PP-Statistic 0.0652 Reject
Between Dimension
Group rho-Statistic 1.0000 Accept
Group ADF-Statistic 0.0000 Reject
Group PP-Statistic 0.0024 Reject
Kao ADF 0.0000 Reject

Furthermore, Table 11 revealed a 91% R-squared with little or slight difference to the adjusted
R-squared of 91%. This shows how the variance in the dependent variables can be explained using
the independent variables. Hence, most of the CO2 emission (i.e., 91%) is explained by the study
independent variables. Further assessment of the independent variables’ total performance (i.e., a test
of overall significance) was carried out using the F-statistic to test if all the study independent variables
coefficient is equal to zero.
H0 = β1 = 0, β2 = 0, β3 = 0, β4 = 0 (3)

H1 = At least one of β4 , 0.
At a significance level of 5%, the null hypothesis is rejected because at least one of the coefficients
βn, is not equal to zero.
Sustainability 2020, 12, 7965 11 of 16

Table 10. Synopsis of Granger causality test.

Hypothesis Observation Probability F-Statistic

LC02 does not Granger Cause LGDP and 955 7× 10−5 9.67521
vice versa 2 × 10−5 10.8376
LC02 does not Granger Cause 2 × 10−5 10.9395
1102
LCAP_FORM and vice versa 0.0267 3.63390
LC02 does not Granger Cause 0.1353 2.00341
1240
LENERGY_CONSC and vice versa 7 × 10−11 23.7898
LC02 does not Granger Cause LPOP and 0.0008 7.21191
1256
vice versa 5 × 10−9 19.3766
LGDP does not Granger Cause 4 × 10−6 12.4948
851
LCAP_FORM and vice versa 4 × 10−7 15.0342
LGDP does not Granger Cause 0.1947 1.63895
939
LENERGY_CONSC and vice versa 6 × 10−12 26.6460
LENERGY_CONSC does not Granger 0.1403 1.96732
1092
Cause LCAP_FORM and vice versa 0.0329 3.42512
LGDP does not Granger Cause LPOP and 0.0672 2.70768
955
vice versa 0.0106 4.56586
LCAP_FORM does not Granger Cause 0.1852 1.68911
1102
LPOP and vice versa 2 × 10−5 11.1630
LENERGY_CONSC does not Granger 0.0135 4.31957
1244
Cause LPOP and vice versa 0.6512 0.42915

Table 11. Result of pooled OLS.

Variables Std. Error Coefficient Probability T-Statistic

LENRGY_CONSC 0.035143 1.888638 0.0000 25.28638
GDP 0.004007 0.010245 0.0107 2.557112
CO2 0.257124 −15.75982 0.0000 −61.29278
LPOP 0.023221 1.778584 0.0000 33.52908
LCAP_FORM 0.022093 0.292241 0.0000 13.22807
R-squared 0.910162
Adjusted R-squared 0.909866
F-Statistic 3082.384

4.8. Fixed Effects

The unobserved heterogeneity is accounted for by using this method to estimate the mean
deviations to eliminate heterogeneity. Based on the results as shown in Table 12 we have rewritten the
econometric model as:

lCO2 = −16.33+0.002gdp + 1.09lenergy_consc +0.05lcap_form + 1.08lpop + vit (4)

Table 12 shows further that at 1%, 5% and 10% significance levels, all the study variables are still
positively significant except for GDP, which is only significant at 10%. However, on average, holding
the other variables constant, an increase in the GDP growth rate will result in an increase in CO2
emissions by 0.15%. Also, an increase in energy consumption by 1% will result in a 1.09% increase in
CO2 emissions. Likewise, an increase in both the population and capital stock by 1% will give rise to a
1.08% and 0.05% increase in CO2 emissions, respectively. Based on the fixed effects method, a 100%
R-squared was obtained. This suggests a rise in the independent variables explanatory power. Also,
Sustainability 2020, 12, 7965 12 of 16

F-statistic reveals that the rejection of the null hypothesis as at a P-value of 0.00 is lower than the 5%
significance level. This further suggests that at least one of the coefficients βn is different from zero.

Table 12. Result of fixed effect estimation.

Variables Std. Error Coefficient Probability T-Statistic

LENRGY_CONSC 0.030737 1.088263 0.0000 35.40530
GDP 0.000816 0.001593 0.0511 1.952462
CO2 0.689571 −16.32856 0.0000 −23.67930
LPOP 0.048312 1.076580 0.0000 22.28392
LCAP_FORM 0.011687 0.047629 0.0000 4.075240
R-squared 0.997254
Adjusted R-squared 0.997087
F-Statistic 5971.530

4.9. Interaction of Variables

This approach explains a situation where two independent variables have a joint effect. Hence,
these two variables are said to have an influence on one another. The impact level of a variable relies
on the level of the other variable. Energy consumption and population are identified to interact in
this study. This means that energy consumption, as a variable, depends on the population. Likewise,
the effect of the population depends on those that consume energy. Based on the results as shown in
Table 13, we have rewritten the econometric model as:

lCO2 = −11.87 + 0.01gdp + 0.34lenergy_consc + 0.30lcap_form + 0.55lpop

(5)
+ 0.03lenrgy_consc *lpop + vit

Table 13. Result of pooled OLS with interaction.

Variables Std. Error Coefficient Probability T-Statistic

LENRGY_CONSC 0.215666 0.344621 0.1103 1.597936
GDP 0.003998 0.010177 0.0110 2.545725
CO2 1.544142 −11.86706 0.0000 −7.685213
LPOP 0.092002 0.550960 0.0000 5.988572
LCAP_FORM 0.022104 0.296451 0.0000 13.41173
LENRGY_CONSC*LPOP 0.012145 0.031048 0.0107 2.556511
R-squared 0.910642
Adjusted R-squared 0.910274
F-Statistic 2478.431

The results reveal that there exists a positively significant relationship between the study variables
and CO2 emissions except for energy consumption. This is because it has a P-value of 0.11, which
is insignificant even though it is positive. This is greater than the significance levels of 1%, 5% or
10%. However, on average, holding the other variables constant, a 1% increase in population will
give rise to a 0.55% increase in CO2 emissions. Likewise, an increase in capital stock by 1% will
give rise to a 0.30% increase in CO2 emissions, while an increase in GDP will result in an increase in
CO2 emissions by 1.02%. Considering the level of significance between energy consumption and the
population, an increase, in interactive terms, of energy consumption and population by 1% will result
Sustainability 2020, 12, 7965 13 of 16

in a 0.03% increase in CO2 emissions. This suggests that the CO2 emissions level, as it relates to energy
consumption, changes depending on the value of the population.
Furthermore, Table 13 revealed a relatively high R-squared of 91%. This suggests that CO2
emission levels are explained by the independent variables and the F-statistic. Hence, the null
hypothesis is rejected. This indicates that at least one of the coefficients of βn, is different from zero.
As a result, CO2 emissions are jointly influenced by the independent variables.

5. Conclusions and Discussion

This study explored the effect of energy consumption and economic growth on CO2 emission
levels by evaluating data from 70 countries between the period of 1994 and 2013. Hence, it draws
attention to the fact that human activities over the years due to urbanization, industrialization and
growth in population have been a major contributor to the global increase in CO2 emission levels.
This poses a major risk to human well-being and the environment at large.
Findings obtained from using the Pesaran, Levin, Lin and Chu (LLC) and the Im and Shin
W-stat (IPS) unit root tests revealed that all the study variables were stationary at I (1) except for GDP.
Also, it was revealed that a long-run relationship exists among the study variables using Pedroni and
Kao cointegration tests. This aligns with the study outcomes of Nain et al. [33], which found that there
exists a long-run relationship between the three variables. However, their study observed that there is
no feedback causation in the short and long run at both aggregated and disaggregated levels. This
is contrary to the current study’s findings that found that a bi-directional causal relationship exists
between the study variables and CO2 emissions using the Granger causality tests, except for energy
consumption, which has a unidirectional causal relationship.
Likewise, the results from using the pooled OLS revealed that all the study variables are positively
significant. This indicates that all the study variables contribute to CO2 emission levels. In addition,
using the fixed-effect method revealed that all the study variables are positively significant except
for economic growth which is only significant at a 10% significance level. This aligns with Dritsaki
and Dritsaki [36] study results, which found that there exist a significant and positive relationships
between the variables under consideration. The results of the R-squared for both the fixed effects
and pooled OLS models, which are 100% and 91%, respectively, suggest that the study independent
variables (i.e., energy consumption, GDP, population and capital stock) explain the variance in the
CO2 emission levels, which is the dependent variable. This means that the models are a good fit.
Another key finding of the study is the introduction of an interaction term between the study variables
(i.e., energy consumption and population) to the pooled OLS. The results revealed that there exists a
positively significant interaction at 5% and 10% significance levels. This means that there exists a joint
effect among the variables and that both variables should be kept in the model.

6. Policy Implications and Future Research

The study concludes that there exists a relationship between the three variables, as energy
consumption and economic growth impact CO2 emissions. As a result, policymakers should pay
attention to making energy and economic related policies that focus on improving energy efficiency and
promoting economic growth with no contributing impact on CO2 emission. Also, the implementation
of such policies should be done without affecting the energy consumption and economic growth of the
society. For instance, climate finance has been taken on board at the global level as one of the actions
needed to address the environmental impacts of CO2 emissions. This involves investing in clean and
climate-friendly options that will foster economic growth. The renewable energy sector fits into such
an initiative. Future studies should therefore focus on creating awareness and promoting investment
in different renewable energy sources. This will avail both developed and emerging economies of clean
energy sources for both commercial and personal consumption. Hence, reducing any damage to the
environment or limiting economic growth of nations.
Sustainability 2020, 12, 7965 14 of 16

Moreover, measures to curb deforestation by the citizens of the countries should be strengthened,
since these activities release CO2 emissions into the atmosphere. Emission standards should be
set for industries and emission monitoring strategies should be put in place to ensure compliance.
The development of the financial markets in these countries can also assist in enhancing investment in
research and development in modern energy-efficient technologies, thus ensuring lower emissions.
Further, since CO2 is not a local pollutant but a global one, perhaps international cooperation would
also help to reduce its emissions. Creating a union between these countries to establish unified
environmental acts will increase the effectiveness of such regulations on the pollution levels. This does
not however rule out individual national environmental laws and regulations. A lack of application of
relevant laws and regulations will result in adverse effects on economic growth.
It is however important to state that the major limitation of this study was the unavailability of
data for the variables considered for some of the countries used for the study. This also placed a limit
in the choice of time horizon for the study (i.e., 1994–2013) as the authors would have preferred to
extend the study time horizon to a much more up to date year (i.e., 2018).

Author Contributions: Conceptualization O.A.O. and M.A.O.; Investigation, M.A.O.; Methodology, O.A.O. and
A.O. (Afolabi Otitoju); Validation, M.A.O.; Visualization, A.O. (Adekunle Oke); Writing—original draft, O.A.O.;
Writing—review & editing, A.O. (Afolabi Otitoju) and A.O. (Adekunle Oke). All authors have read and agreed to
the published version of the manuscript.
Funding: This research received no external funding.
Conflicts of Interest: The authors declare no conflict of interest.

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