THE RELATIONSHIP BETWEEN CARBON DIOXIDE (CO2) EMISSIONS, ENERGY CONSUMPTION, AND ECONOMIC GROWTH IN MONTENEGRO

This study investigated the relationship between carbon dioxide (CO2) emissions, energy consumption, and economic growth (GDP) in Montenegro from 1997 to 2020. The data used in this study have an annual frequency and were extracted from the World Development Indicators, Eurostat, and Monstat database. CO2 emissions have almost doubled in Montenegro from 1997 to 2019, from 2.74 to 4.18 metric tons per capita. This study shows that the correlation between CO2 emissions and GDP is high and positive in Montenegro. The estimation results, based on the OLS model, show that an increase in GDP by one percentage point leads to the increase in CO2 emissions by 0.02 percentage points. The empirical analysis in this study also shows that a positive relationship exists between energy consumption and CO2 emissions in Montenegro. Further analysis shows that a negative relationship exists between electricity consumption and CO2 emissions, and a positive relationship between oil and petroleum consumption and CO2 emissions. In energy balance for Montenegro, oil and petroleum products represent more than 40% of the total energy use in final consumption. As CO2 emissions increase in Montenegro, the transportation sector, as the largest consumer of oil products, should be analysed. Fossil fuel energy consumption (coal, oil, petroleum, and natural gas products, the percentage of the total energy consumption) increased from 52.5% (2005) to 60% (2020) in Montenegro. Renewable energy (renewable, biofuels, and bioenergy) consumption (% of the total final energy consumption) increased from 38% (2005) to 42% (2020). Available research shows that the Environmental Kuznets Curve (EKC) cannot be validated for Montenegro, which suggests that efforts to reduce fossil fuel energy consumption should increase while the production of renewable energy should be preferred, as GDP growth by itself will not contribute to the reduction of CO2 emissions. Montenegro produces hydropower energy, and solar and wind energy production have recently grown moderately. The Energy Development Strategy of Montenegro by 2030 was adopted in 2014, which promotes energy production from renewable sources. This study contributes to the existing literature as the consumption of different types of energy (electricity, gas, and petroleum) and their impact on CO2 emissions were investigated. The study shows that oil and petroleum consumption in Montenegro has been positively associated with CO2 emissions, which is an important finding as the transportation sector still dominantly uses fossil fuels as its energy source, while other sectors which use electricity have more flexibility to switch to renewable energy sources (electricity produced from hydro, wind, and solar power plants).