The Nexus Between Carbon Emission, Energy Consumption, Economic Growth And Changing Economic Structure In India: A Multivariate Cointegration Approach

India, one of the fastest growing economies of the world is also one of the largest CO2 emitters in the world. Challenge before the country is to reduce this alarming emission levels without hindering its growth prospects. Against this backdrop, the present paper studies the dynamic causal relationships between India's CO2 emission, energy consumption, GDP growth and changing economic structure. The study uses cointegration and causality analysis for the same. ARDL bound testing approach along with Johansen-Juselius maximum likelihood procedure is applied to examine the existence of long run equilibrium relationship among the variables. Causal linkages between the variables are studied using Granger causality test in Vector Error Correction model framework. For this the study uses data on India for-CO2 emissions, primary energy consumption, GDP per capita and structural variables like, agriculture and service value added, urbanization, production of capital and intermediate goods and employment. Primary energy consumption, per capita GDP and trade openness explain variations in CO2 emissions over long run. Elasticity of CO2 emission with respect to energy consumption is 2 percent in long run and 1.8 per cent in short run. CO2 emissions are less responsive to changes in per capita GDP (0.52) and trade openness (0.10). Both trade openness and GDP per capita growth lower emissions by producing and exporting more labor-intensive environment friendly goods. Causality analysis shows that trade openness Granger causes CO2 emission both in short run and in long run while CO2 emission Granger causes service value added and production of capital and intermediate goods in the short run. Output in these sectors in turn Granger cause employment in the long run. Given the nature of causality, there is no way that India can reduce energy consumption in service sector or in capital and intermediate goods sector. Thus, faced with growing concern over rising emission levels and requirements to meet its growth potentials, India should take policies aiming at greater investment in and usage of cleaner energy, conservation of energy and improving energy efficiency. This way it can strike a balance between reducing its emission levels while maintaining its current growth momentum.