Energy Consumption, Income, Technological Progress, and Carbon Emissions Empirical Evidence from Malaysia (1970 – 2012)

Alarms over climate change have raised concerns that major economic variables are coupled with carbon emission. The objective of this study is to examine the dynamic linkages among carbon emissions, energy consumption, income, gross fixed capital formation, labour force, technological progress, and trade openness in Malaysia from 1970 to 2012 using vector error correction model. The co-integration test shows the existence of long-run relationship among the variables. Results reveal that real GDP, trade openness and technological progress are relevance policy variables that have long-run impacts on carbon emissions reduction in Malaysia. The causality results find that there is a short-run and long-run Granger causality running from technological progress to carbon emissions reduction. There is no causality from any direction between carbon emissions and real GDP (income), and between carbon emissions and energy consumption in the short – run. The finding of positive uni-directional short-run causality running from real GDP to energy uses implies that Malaysia is an energy dependence economy and more energy is required in the short-run to boost economic growth and development. This also implies decoupling of energy use and emission probably due to increasing proportion of green energy such as biomass, and dam-check proportion of green energy trend. Impuls