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The role of energy in four countries’ economy: Causality analysis Prepared by: Arjun Dhakal Ayse...
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The role of energy in four countries’ economy: Causality analysis
Prepared by:
Arjun Dhakal Ayse Ozge Kepenek Jiaqiao LinLydia Stergiopoulou
Feb. 2nd, 2007
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Relationship between EnergyConsumption 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
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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
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Population and Income
China India UK USA
Population, total (millions) 1304.5 1094.6 60.2 296.5
Urban population (% of total) 40.4 28.7 89.7 80.8
GDP (current US$) (billions) 2228.9 785.5 2192.6 12455.1
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Energy and Emission by Country
China India UK USA
GDP per unit of energy use (constant 2000 PPP $ per kg of oil equivalent)
4.5 5.2 7.1 4.5
Energy use (kg of oil equivalent per capita) 1094 520 3893 7843
Combustible renewables and waste (% of total energy)
15.5 38.2 1.2 3
Energy imports, net (% of energy use) 2 18.1 -6.1 28.5
Electric power consumption (kWh per capita) 1379 435 6209 13078
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
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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?
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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).
Reduction in energy consumption
Developed
Developing
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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; Asafu-Adjaye ,2000; Masih and Masih , 1996)
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Expanding energy consumption?!
Promoting energy efficiency
Decreasing energy intensity
Diversify energy sources that are renewable
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• To conduct following analysis:
Different energy category use vs. GDP
Coal consumption
Electricity consumption/production
Oil consumption
Natural gas
Energy efficiency
Hydro-
Coal
Nuclear-
Renewable-
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Model Summary
.942a .888 .883 722.09778Model1
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), COAL_CNa.
Preliminary findings
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Model Summary
.984a .967 .966 1128.22142Model1
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), COAL_INa.
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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
Methodology
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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
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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
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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.
References