Energy Consumption as a Leading Factor of CO2 Emissions. Is the EKC still valid for the United States?

Sammanfattning: The objective of this paper is to examine the long-run relationship between CO2 emissions, economic output (GDP), and energy consumption in the US during the period 1960-2015. Energy consumption is investigated in its aggregated and disaggregated form i.e. Fossil Fuel, Nuclear, and Renewable energy to elicit a more precise diagnosis of the emission-energy-GDP nexus. The paper contributes to existing literature by identifying the key drivers of CO2 emissions for the US. To provide evidence that the included variables share a common trend the Johansen cointegration method and a Vector Error Correction Model (VECM) was applied. The long-run estimates obtained from the VECM indicate that an increase in energy consumption contributes positively towards CO2 emissions, whereas an increase in GDP mitigates environmental degradation. Fossil fuel energy consumption is found to be the main culprit for proliferating CO2 emissions. The results for both these cases reveal that the modified Environmental Kuznets Curve (EKC) hypothesis does not hold for the US. However, considering nuclear and renewable energy use, the empirical findings suggest that EKC is valid and the consumption of clean energy sources mitigates environmental degradation significantly. Additionally, we declare that the EKC is rather a long-run phenomena than short-run, as we do not find significant short-run Granger causality running from energy consumption and GDP to CO2 emissions. Thus, the US government should frame policies that promote renewable energy use either by taxing fossil fuel or subsidizing alternative and renewable energy. The government is further advised to increase investment in clean technologies and enhance public awareness on energy consumption to curb the degrading environment.