Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia

1
Long and short-run linkages between economic
growth, energy consumption and CO2 emissionsin
Tunisia
Global Development Medals Competition Theme The
Economics of Natural Resource Management

• Houssem Eddine CHEBBI, Ph D
• Faculty of Economic Sciences and Management of
  Nabeul (FSEGN) - Tunisia

2

• Structure of presentation
• Introduction
• Tunisian Economic Energy Situations
• Motivations
• Main Objective
• Data stationarity
• Part I Long-run relationships study (a
  cointegration analysis)
• Part II Short-run dynamics (generalized impulse
  response functions)
• Part III Granger - causality study
• Summary policy implications

3
Introduction

• The relationship between economic growth energy
  consumption, as well as economic growth
  environmental pollution, has been one of the most
  widely investigated questions in the environment
  economic literature
• whether energy consumption ? stimulates, ?
  retards or ? is neutral to economic growth has
  motivated interest among economists and policy
  analysts
• empirical finding studies are not conclusive to
  present policy recommendation that can be applied
  across countries
• Few studies focus to test the nexus of
  output-energy and output-environmental
  degradation under the same -integrated framework.

4
Introduction Tunisian Economic Energy
Situations (2005)

• Tunisia is amongst the MENA countries with a
  strong growth potential with annual growth of GDP
  exceeding 5 (since 1995)
• The consumption of primary energy in Tunisia (8.5
  Mtoe) is covered by
• crude oil and petroleum products (50)
• natural gas (38)
• biomass (12 ) essentially used in rural areas
• The energy use composition by sectors (has not
  changed since 2000)
• household sector (29),
• transportation (25),
• industry sector (16),
• agriculture (4)
• Tunisia is a hydrocarbon importer (absence of a
  significant discovery) and has initiated a plan
  to reduce the oil-deficiency.

5
Introduction Motivations

• The empirical relationships between economic
  growth, energy consumption and environmental
  degradation were largely under considered and
  unanswered in Tunisia
• Environmental Awareness and policy makers in
  Tunisia?
• Tunisia appears to be an interesting case study
• one of the highest growth economies in the MENA
  region
• energy supply is insufficient to meet the
  increasing demand.

6
Main Objective

• The aim of this research is to quantify long and
  short-run linkages between economic growth,
  energy consumption and environmental degradation.

• This research may be useful
• to present some findings to better integrate the
  environment into economic development
  decisions
• Necessity of implementing environmental policy?
• to formulate policy recommendation from
  conservation, emission reduction and economic
  performance viewpoints

7
Data stationarity properties (1)

• PGDP Real Gross Domestic Product (per capita)
• PENE Energy Use (per capita)
• PCO2 Carbon Dioxide Emissions (per capita) as
  proxy for the level of pollution and
  environmental degradation in Tunisia
• Annual data 1971 2004
• The World Development Indicators (World Bank,
  2008).
• All variables are indexed (basis 1001986) and
  transformed in logarithms.

8
Data stationarity properties (2)

• The first stage
• to investigate the stationarity properties and
  establishing the order of integration of series
  (PGDP, PCO2 and PENE).
• The combined results of both unit root tests ADF
  (Dickey and Fuller, 1979 and 1981) and KPSS
  (Kwiatkowski et al., 1992) suggest that all
  series are non-stationary and integrated of order
  one, I(1).

This implies the possibility of cointegrating
relationships
9

• Part I
• Long-run Relationships Study A Cointegration
  Analysis

10
Long-run relationships study a cointegration
analysis (2)

• The next step is to investigate whether the
  series are cointegrated using the Johansen
  procedure

11
Long-run relationships study a cointegration
analysis (3)

• Results of Johansens likelihood ratio tests for
  cointegration rank

Trace statistics do not reject the null
hypothesis that there are 2 cointegrating
relation between the variables (r2).
12
Long-run relationships study a cointegration
analysis (4)

• first vector (positive linkage between PGDP
  PENE)
• 1 increase in PENE will raise economic growth by
  1.124.

13
Long-run relationships study a cointegration
analysis (4)

• first vector (positive linkage between PGDP
  PENE)
• 1 increase in PENE will raise economic growth by
  1.124.
• second vector (positive linkage between PCO2
  PENE)
• 1 increase in PENE will raise PCO2 by 1.352.
• Some evidence of inefficient use of energy
  since environmental pressure tends to rise faster
  than economic growth in the long-run.

14
Long-run relationships study a cointegration
analysis (5)

• The speed of adjustment of each variable towards
  the long-run equilibrium
• first vector the ? parameters related with PGDP
  (?11) and with PCO2 (?21) are not significant ?
  any shock in the long-run relationship between
  GDP and ENE generates only a significant
  adjustment of energy consumption.

15
Long-run relationships study a cointegration
analysis (5)

• The speed of adjustment of each variable towards
  the long-run equilibrium
• first vector the ? parameters related with PGDP
  (?11) and with PCO2 (?21) are not significant ?
  any shock in the long-run relationship between
  GDP and ENE generates only a significant
  adjustment of energy consumption.
• second vector the ? parameters indicate that
  PENE react quicker than PGDP and PCO2
  (?32gt?12gt?22) ? energy policy seems to be more
  oriented to supporting economic growth than to
  encouraging the reduction of carbon emission.

16

• Part II
• Generalized Impulse Response Functions Short-run
  Dynamics

17
Generalized Impulse Response Functions (GIRF) (2)

• Short-run dynamics can be examined by considering
  the Generalized Impulse Response Functions
  (GIRF).
• These functions show the response of each
  variable in the system to a shock in any of the
  other variables.

18
Generalized Impulse Response Functions (shock in
PGDP)
Response of PGDP
Response of PENE
Response of PCO2

• Responses of PENE appear to be slightly larger
  than those of PCO2 and the significant output
  growth appears to have some permanent pressure on
  energy use and CO2 emissions ? economic growth
  takes precedence over energy consumption in the
  short-run.
• Response of PCO2 is only significant 5 horizons
  after the initial shock ? higher growth may lead
  to pollution as consequence of emissions
  occurring during the production process.

19

• Part III
• Granger-causality Study

20
Granger-causality Study (2)
21
Granger-causality Study (3)

• The results show strong evidence of PGDP causing
  PENE and do not support the view of neutrality.
• The economic growth exerts a positive causal
  influence on energy consumption growth.
• Support for reverse causality is also found in
  the long-run.
• ? Tunisia is an energy dependent economy.
• The Tunisian economy may be vulnerable to energy
  shocks in which an energy shortage may adversely
  affect GDP growth.

22
Granger-causality Study (4)

• Statistical results provide support for causality
  running from PCO2 to PGDP (both in the short-run
  and the long-run).
• The results provide some support of mutual causal
  (feedback relationship) in the long-run.
• This pattern of development is consistent with
  the experiences of many developing countries
  (higher pollution levels).

23
Summary Policy Implications (1)

• The aim of this country specific study is to
  understand long and short-run linkages between
  economic growth, energy consumption and carbon
  emission.
• This research attempts to present some findings
  to call on the necessity of integrating the
  environment and development in the policies and
  practices.

24
Summary Policy Implications (2)

• Results of the long-run relationships provide
  some evidence of inefficient use of energy,
  since environmental degradation tends to rise
  more rapidly than economic growth in Tunisia.

25
Summary Policy Implications (3)

• Results provide support for
• causality running from pollution emissions growth
  to output growth (both in the short-run and the
  long-run).
• mutual causal and feedback relationship in the
  long-run.
• From a policy perspective
• This pattern of development ? high levels of
  pollution
• Decline in environmental quality may exert
  negative externalities to the economy through
  depressing the tourism sector and also affecting
  human health (and thereby reduce productivity and
  growth in the future).

26
Summary Policy Implications (4)

• Results confirm that an increase in pollution
  level induces economic expansion
• ? In order not to adversely affect economic
  growth, more efforts must be made to encourage
  industry to adopt technology that minimizes
  pollution.
• as a serious environmental policy, although
  Tunisia has no commitment to reduce GHG
  emissions.
• The potential exists for the development of
  renewable energies (renewable energies represent
  less than 1 of the primary energy use in
  Tunisia) and further efforts would require
  additional financing by policy makers.

27
Summary Policy Implications (5)

• The combined results of causality analysis and
  IRF indicate that Tunisia is an energy dependent
  economy ? The Tunisian economy may be vulnerable
  to energy shocks in which an energy shortage may
  adversely affect output growth.
• For this reason, it seems possible that energy
  conservation policies could be achieved through
  the rationalization of household demand
  transportation sector consumption.
• .Further empirical analysis, including other
  variables (investment, trade, ) could be
  conducted in the future

28
Long and short-run linkages between economic
growth, energy consumption and CO2 emissions in
TunisiaHoussem Eddine CHEBBI, Ph DFaculty of
Economic Sciences and Management of Nabeul
(FSEGN) - Tunisia
Global Development Medals Competition Theme The
Economics of Natural Resource Management

• I thank you for your kind attention