Transcript Causality relationship: GDP – Energy Consumption

The role of energy in four countries’ economy:
Causality analysis
Prepared by:
Arjun Dhakal
Ayse Ozge Kepenek
Jiaqiao Lin
Lydia Stergiopoulou
Feb. 2nd, 2007
Relationship between Energy
Consumption and GDP
• Economic growth is requiring less additional
energy consumption, mainly as a result of
structural changes in the economy. However, total
energy consumption is still increasing. European
Environmental Agency (April 2006)
• A policy to reduce energy consumption
aimed at reducing emissions is likely to have
greater impact on the GDP of the developed
rather than the developing world. OECD
Uncertainty in the relationship
between energy use to GDP
• Comparison among countries of the ratio of
energy use to GDP is complicated by many
factors.
- geographical differences (climate, size)
- differences in environmental impact
among energy sources
- the strength of this relation varies among
regions over time
Population and Income
China
Population, total (millions)
Urban population (% of total)
GDP (current US$) (billions)
India
UK
USA
1304.5
1094.6
60.2
296.5
40.4
28.7
89.7
80.8
2228.9
785.5
2192.6 12455.1
Energy and Emission by
Country
China
GDP per unit of energy use (constant 2000
PPP $ per kg of oil equivalent)
4.5
Energy use (kg of oil equivalent per capita)
Combustible renewables and waste (% of total
energy)
Energy imports, net (% of energy use)
India
5.2
UK
USA
7.1
4.5
1094
520 3893
7843
15.5
38.2
1.2
3
2
18.1
-6.1
28.5
13078
Electric power consumption (kWh per capita)
1379
435 6209
Electricity production from coal sources (% of
total)
79.4
68.3
35.4
51.4
CO2 emissions (kg per 2000 PPP $ of GDP)
0.6
0.5
0.3
0.6
CO2 emissions (metric tons per capita)
2.7
1.2
9.2
20.2
PM10, country level (micrograms/ cubic meter)
80
84
17
24
Question=
• To run and test, until recently if there is the causal relationship as
mentioned in the references in selected countries
For developed, E
GDP
E
GDP
, so if it is reasonable for them to take responsibility of mitigating CO2
emissions, if so what’s the relation of relevant measures to GDP
For developing, E
GDP
,so if they should reduce energy consumption to mitigate CO2 emission or
through other measures, say, improving efficiency, increase alternative
renewable energy, will these affect domestic income?
Comparison between two groups
• From references for developing countries, energy use
seems to play an equally important role in most of them.
• Therefore, if the causal relationship is greater for them,
then any restraint on energy consumption will exert more
impacts on these countries compared to the more
industrialised countries (Chontanawat, 2006; Sari &
Soytas, 2007).
Developed
Reduction in energy
consumption
Developing
The Case of China
•
Unidirectional Granger causality found from electricity consumption
to real GDP (Shiu & Lam, 2004)
• Unidirectional Granger causality, from coal, coke, electricity and
total energy consumption to real GDP but no Granger causality
between oil consumption and real GDP (Shanghai). (Wolde-Rufael,
2004)
The Case of India
• Cheng (1999) finds no Granger causality running from energy
consumption to economic growth,
• While many papers find unidirectional Granger causality running from
energy consumption to income. (Paul & Bhattacharya , 2004; AsafuAdjaye ,2000; Masih and Masih , 1996)
Expanding energy consumption?!
Promoting energy efficiency
Decreasing energy intensity
Diversify energy sources that are renewable
• To conduct following analysis:
Different energy category use vs. GDP
Coal consumption
Hydro-
Electricity consumption/production
Coal
Oil consumption
Nuclear-
Natural gas
Renewable-
Energy efficiency
Model Summary
Model
1
R
.942a
R Square
.888
Adjusted
R Square
.883
a. Predictors: (Constant), COAL_CN
Std. Error of
the Estimate
722.09778
Preliminary findings
Model Summary
Model
1
R
.984a
R Square
.967
Adjusted
R Square
.966
a. Predictors: (Constant), COAL_IN
Std. Error of
the Estimate
1128.22142
Methodology
Causal relationship: GDP – Energy Consumption
• Variables:
GDP: X(t)
Energie Consumption: Y(t)
using time series X= {Xt, Xt-1, Xt-2 …}
Y= {Yt, Yt-1, Yt-2, …}
• Our Autoregressive Model:
Xt = c + φ1Xt-1 + φ2 Xt-2 + … + φp X t-p + Et
Yt = c + θ1Yt-1 + θ2 Yt-2 + … + θp Yt-p + Et
φ1, …φp and θ1 , ... θp : the parameters of our model
c : a constant
Et : an error term
Granger test
• Technique for determining whether one time series is
useful in forecasting the other
• a series of tests on values of X and Y will determine if :
• X values provide statistically significant information on
future values of Y
If yes then:
• Time series X is said to Granger-cause Y
• Meaning that GDP past trends influence future Energy
Consumption trends
Expectations
• To review the former findings and combine
our causal analysis results to find if cut
down the primary energy consumption will
affect economic growth.
• To find if expand renewable energy
proportion will affect economic growth
• To provide facts for policy making process
References
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Asafu-Adjaye, J. (2000) The relationship between energy consumption, energy prices and
economic growth: Time series evidence from Asian developing countries. Energy Economics,
22(6), 615-25.
Chontanawat, J., Leste,r C. Hunt, Richard, Pierse (2006). Causality between Energy Consumption
and GDP: Evidence from 30 OECD and 78 Non-OECD Countries. In SEEDS(Surrey Energy
Economics Discussion paper Series).
Hu, J.-L. & Wang, S.-C. (2006) Total-factor energy efficiency of regions in China. Energy Policy,
34(17), 3206-06.
Masih Abdul, M.M. & Masih, R. (1996) Energy consumption, real income and temporal causality:
Results from a multi-country study based on cointegration and error-correction modelling
techniques. Energy Economics, 18(3), 165-83.
Masih Abul, M.M. & Masih, R. (1998) A multivariate cointegrated modelling approach in testing
temporal causality between energy consumption, real income and prices with an application to
two Asian LDCs. Applied Economics, 30(10), 1287-98.
Sari, R. & Soytas, U. (2007) The growth of income and energy consumption in six developing
countries. Energy Policy, 35(2), 889-98.
Shiu, A. & Lam, P.-L. (2004) Electricity consumption and economic growth in China. Energy Policy,
32(1), 47-54.
Soytas, U. & Sari, R. (2006) Energy consumption and income in G-7 countries. Journal of Policy
Modeling, 28(7), 739-39.
Wolde-Rufael, Y. (2004) Disaggregated industrial energy consumption and GDP: the case of
Shanghai, 1952-1999. Energy Economics, 26(1), 69-75.
ZhiDong, L. (2003) An econometric study on China's economy, energy and environment to the
year 2030. Energy Policy, 31(11), 1137-50.