Chinese growth and dilemmas: modelling energy consumption, CO2 emissions and growth in China

Global warming appears world challenging problem of current age. International communities have agreed in recent Paris agreement to reduce global pollution to certain level and have shown great concern with Chinese pollution. China is not only the world second largest and fast growing economy but the highest CO2 emitters as 29.4% world emissions source is China. This paper adds in this debate by exploring cointegration and causal relation between real GDP per capita, CO2 emissions per capita, energy consumption per capita and urban population for China utilizing annual data for the period of 1971–2014. Autoregressive distributed lag model has been used to confirm the cointegration among variables. Results reveal short run income coefficient is positive while it turns to negative and insignificant in long run marking that growth and development is supportive in CO2 emissions reduction in China. Its insignificancy gives impression that only growth dependency to overcome CO2 emissions will not be appropriate choice for China. By introducing income cubic function, N-shape relation between income and CO2 emissions was found in long run that re-emphasis though income is helping in emissions reduction, however, there is need to dependent on multiple environmental policies. Further, results show that energy consumption has positive and significant impact on CO2 emissions and energy coefficient was becoming fatter with the time. Urban population was insignificant while it turns to negative and significant with income cubic model suggesting that urbanization process is not adding to pollution emissions in China. Overall, results give feelings that model with income cubic function is suited well for Chinese economy. FMOLS and GMM estimators confirm ARDL results are robust. In addition, this paper also explores causal relation between the variables by utilizing error correction based on granger causality models.