Causality between energy, carbon, and economic growth: empirical evidence from the European Union

This paper examines the relationship between energy consumption and economic growth and between energy consumption and greenhouse emissions for the EU countries, using time series data from 1996 to 2012 within a multivariate framework for 26 EU countries. The energy sources considered are oil consumption, natural gas consumptions, and renewable energies including biomass as a distinct part. Unit Root Tests, cointegration test, Pairwise Granger causality tests, and Error Correction Model are employed to find out the type of the causal relationship. We find out that there is in the short run, a positive unidirectional causal relationship running from oil consumption to economic growth. There is also a positive bidirectional causal relationship between renewable energies and economic growth and between greenhouse emissions and economic growth. However, there is also an unexpected negative bidirectional causal relationship between biomass consumption and gas consumption. From the greenhouse emissions perspective, we can see in the short run, a negative bidirectional causal relationship between greenhouse emissions and renewable energies, and a positive unidirectional causal relationship running from both oil consumption and biomass consumption to greenhouse emissions.