An analysis of energy, environment and economic growth (EEE) nexus: a 2SLS approach

• Published date: 01 June 2022
• Author: Mowshumi Sharmin,Sima Rani Dey,Faroque Ahmed,Mohammad Tareque
• Date: 01 June 2022
• DOI: http://doi.org/10.1111/opec.12229

An analysis of energy, environment and

economic growth (EEE) nexus: a 2SLS

approach

Mowshumi Sharmin , Sima Rani Dey, Faroque Ahmed and

Mohammad Tareque

Bangladesh Institute of Governance and Management, Plot No: E-33, Agargaon Administrative Area, Sher-

e-Bangla Nagar, Dhaka, Bangladesh. Email: mowshumi405@gmail.com

Abstract

The growing apprehension of global warming, greenhouse gas emissions and increasing use of

fossil fuel due to emergent economic activity signifies that for the sustainability of the environment

cleaner energy use is important. In the same pursuit, this study aims to examine the energy,

environment and economic growth nexus of Bangladesh, incorporating both renewable and non-

renewable energy consumption with forest depletion. We have employed the Two-Stage Least

Square approach to avoid likely simultaneity bias and possible endogeneity of the variables arising

from the ordinary least squares. Result postulates non-renewable energy consumption and forest

depletion have a significant impact on CO

2

emission, whereas renewable energy shows no

significant consequence. The issue which arises in this regard is that renewable energy

consumption has not yet reached a stage from where it could play a substantial role in emission

reduction of the country. Therefore, countries should adopt policies that would provide a

conducive environment for affordable energy use.

1. Introduction

Energy plays a pivotal role both on the demand and the supply sides of the economy

providing maximum utility to the consumers and being a key factor of production

besides land, labour, capital and raw materials. Moreover, energy contributes to

economic, human and social progress, which are indispensable inputs of development

(IEA, 2011) especially in developing economies. Energy consumption in developing

economies is growing rapidly in line with rapid economic growth, population growth,

urbanisation and industrialisation. In addition, economic growth is closely linked to

energy consumption (Aslam et al., 2021; Islam and Islam, 2021; Sharmin, 2021b) and

more efficient utilisation of energy resource requires a higher level of economic growth

as well (Muhammad et al., 2011). Some findings suggest that energy consumption gives

rise to CO

2

emissions (Ozturk, 2010; Zeshan and Ahmed, 2013; Sharmin and Tareque,

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228

2020). There is not only a rising apprehension of inadequate energy supply but also a

paradigm shift of demand of using green energy emerging due to the global warmi ng

problem. Therefore, strict environmental standards could have significant impacts on

energy activities and might promote renewable options for the sustainability of the

environment (Rehman et al., 2019; Ramzan et al., 2022).

With the advent of climate change, the increase in global temperatures are getting

more attention as global environmental problems (Alam et al., 2012; Wang et al., 2016;

Zhao et al., 2021). Factors influencing global temperature rise include variation in land

use, continuously changing irrigation, desertification due to forest depletion, human-

induced carbon dioxide (CO

2

) emission from industrialisation and urbanisation, huge

quantities of previously trapped greenhouse gas (GHG) as methane (CH

4

) and many

more. These phenomena not only cause the global temperature rise but also raise sea

level and shorten the winter season. Against this backdrop, the trio nexus between

environment, energy and economic growth (growth) is of great interest to researchers

worldwide for a long time. This study only concentrates on the increased share of CO

2

in

the atmosphere which is caused by the rampant use of fossil fuels as the key element of

climate change. Alternatively, modern economies are trying to replace coal and oil with

less carbon-intensive renewable alternatives that is hydro, wind, solar and nuclear power

(Sharif et al., 2019; Sharmin, 2021a; Islam et al., 2022) In this context, this study tries to

give some insight into relevant policymaking.

In this context, the energy, environment and growth overview is very pertinent to

fathom the overall scenario. Energy is the prime mover of poverty alleviation, economic

development, security and sustainability of any country. Bangladesh is no exception to

that. The historical overview of the energy, economic growth and environment in Fig. 1,

portrays the movement of GDP per capita, energy consumption and CO

2

emission:

With the increase in energy consumption, growth is increasing, and keeping in pace

with energy consumption and growth CO

2

emission is also on the ascending trend. The

0

200

400

600

800

1000

1200

1980

1985

1990

1995

2000

2005

2010

2015

GDP per

capita

(constant

2010 US$)

Energy use

(kg of oil

equivalent

per capita) 0

0.1

0.2

0.3

0.4

0.5

0.6

1980

1985

1990

1995

2000

2005

2010

2015

CO2

emissions

(metric

tons per

capita)

Figure 1 GDP per capita, energy consumption and CO

2

emission of Bangladesh.

Source: WDI, 2019 [Colour figure can be viewed at wileyonlinelibrary.com]

©2022 Organization of the Petroleum Exporting Countries. OPEC Energy Review June 2022

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