Carbon dioxide emissions, energy consumption and economic growth: The historical decomposition evidence from G-7 countries

This paper investigates the relationship between carbon dioxide emissions, energy consumption and economic growth in the G-7 countries from a historical perspective. To this end, taking time varying interaction and business cycle into account, we use the historical decomposition method for the first time in the literature. Our results provide evidence that Canada, Italy, Japan and partly the United States need to sacrifice economic growth if they aim to reduce CO2 emissions by decreasing the fossil-based energy use. This situation is not valid since the early 1990s for France, throughout the analysis period for Germany and a few exceptions in all periods for the UK. Furthermore, empirical results provide evidence contrary to the EKC hypothesis for Canada, Germany, Japan, the UK and the US. We found BC-shaped and N-shaped curve for France and Italy, respectively. Although the EKC hypothesis is not valid for Germany and the UK, economic growth has no damaging effect on environmental quality. Also, this effect seems to be cyclical for the US. While the energy conservation theory is fully supported for Canada, it is strongly supported for France, Italy, Japan and the US with the exception of some periods. In addition to these findings, we find strong evidence to support the growth theory for all the G-7 countries.