Energy Consumption , Economic Development and CO₂ Emissions: A time series approach

Abstract

Global economic growth is intrinsically linked to energy consumption, with fossil fuels accounting for over three-quarters of total energy use. A longstanding debate centers on the relationship between economic growth and CO₂ emissions, particularly regarding the potential to decouple growth from emissions. This study examines this relationship using World Bank data from 193 countries over the period 1965-2023. The analysis reveals a strong positive correlation between GDP per capita, energy consumption (r = 0.99), and CO₂ emissions, indicating that economic growth is closely tied to increasing energy use and emissions. Global energy consumption has grown by an average of 7.6 Exajoules annually, representing a 2% rise per year. Stationarity tests show that all variables are non-stationary in their level form but become stationary after first differencing. Cointegration analysis indicates a long-run equilibrium among the variables. VAR and Granger causality tests suggest that while past values influence each variable, short-term interactions remain weak. These findings highlight the need for structural changes and transformative policies to decouple economic growth from carbon emissions.