Energy consumption, CO2 emissions, and economic growth: evidence from Indonesia

Energy policy-makers in Indonesia are interested in the causal relationship between energy consumption, CO2 emissions, and economic growth. Therefore, this paper attempts to analyze the short- and long-run causality issues between energy consumption, CO2 emissions, and economic growth in Indonesia using time-series techniques. To this end, annual data covering the period 1965-2006 are employed and tests for unit roots, co-integration, and Granger-causality based on an error-correction model are applied. The results show that there is a bi-directional causality between energy consumption and CO2 emissions. This means that an increase in energy consumption directly affects CO2 emissions and that CO2 emissions also stimulate further energy consumption. In addition, the results support the occurrence of uni-directional causality running from economic growth to energy consumption and to CO2 emissions without any feedback effects. Thus, energy conservation and/or CO2 emissions reduction policies can be initiated without the consequent destructive economic side effects.