Energy Consumption, Carbon Emissions and Economic Growth in Indonesia and Malaysia

The main objective of this study is to examine the relationship between energy consumption, carbon emission and economic growth in the case of Indonesia and Malaysia. As every type of energy may has different impact on carbon emission and economic growth, the aggregate and disaggregate energy consumption are applied in the analysis. For the model of aggregate energy consumption, this study employs total energy consumption per capita and CO2 emission per capita based on the total of energy consumption. Meanwhile, the disaggregate models use derivatives of variable energy consumption, namely, oil, coal, and gas. Some methodologies of econometrics such as unit root, cointegration, Granger causality, and error correction model are employed in the analysis. The short and long-run relationship are exist in both countries, the increase in aggregate consumption of energy source will increase produce CO2 emission, while the increase in income also leads to the increase of CO2 emission. Moreover, gas consumption is less polluting compared with other source of energy. In addition, there is a negative relationship between income and carbon emission which indicate that the carbon emission can be reduced by using gas as source of energy without preventing economic growth.