Understanding the Causality between Carbon Dioxide Emission, Fossil Energy Consumption and Economic Growth in Developed Countries: An Empirical Study

Abstract

Issues on climate change have been recognized as serious challenges for regional sustainable development both at a global and local level. Given the background that most of the artificial carbon emissions are resulted from the energy consumption sector and the energy is also the key element resource for economic development, this paper investigated the relationship between CO₂ emission, fossil energy consumption, and economic growth in the period 1970–2008 of nine European countries, based on the approach of Granger Causality Test, followed by the risk analysis on impacts of CO₂ reduction to local economic growth classified by the indicator of causality degree. The results show that there are various feedback causal relationships between carbon emission, energy consumption and economic growth, with both unidirectional and dual-directional Granger causality. The impact of reducing CO₂ emission to economic growth varies between countries as well.