How economic growth, sustainable energy and carbon emission impact each other? New insights from India using ARDL approach

• Published date: 01 September 2023
• Author: Jasvinder Kaur,Kamaljit Singh,Rashmi Chaudhary,Simmi Vashishtha
• Date: 01 September 2023
• DOI: http://doi.org/10.1111/opec.12280

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     OPEC Energy Rev. 2023;47:216–238.wileyonlinelibrary.com/journal/opec

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 INTRODUCTION

Energy is an  indispensable factor in  sustaining the development  of countries.  The Indian Government has  established 

enthusiastic short to medium- term resource goals to achieve sustainable development. The  increased focus on sustain-

able energy (SE)  sources can be attributed to factors like high dependency  on coal and  natural sources, excessive fossil 

fuel combustion and environmental consequences of  carbon emissions (IEA,2019). On 1st November 2021, in the  26th 

meeting of  the Conference  of  the  Parties (COP26)  at  the United  Nations  Climate Summit  in  Glasgow, India's  Prime 

Minister declared a new goal of ‘Net Zero Emission’ by 2070. India currently emits 1.9 tons of CO2 per capita, significantly 

under the  global  average of  4.69  metric  tons, accounting  for  approximately 7.3% of  global total CO2  emissions (IEA, 

DOI: 10.1111/opec.12280  

ORIGINAL ARTICLE

How economic growth, sustainable energy and carbon

emission impact each other? New insights from India using

ARDL approach

JasvinderKaur1

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KamaljitSingh2

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RashmiChaudhary1

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SimmiVashishtha3

© 2023 Organization of the Petroleum Exporting Countries.

1Department of Commerce, 

Kurukshetra University, Kurukshetra, 

Haryana, India

2University School of Business, 

Chandigarh University, Mohali, India

3Delhi Pharmaceutical Sciences and 

Research University, Delhi, India

Correspondence

Kamaljit Singh, University School 

of Business, Chandigarh University, 

Mohali, India.

Email: kamaljeetr.sehjan@gmail.com

Abstract

This  study  investigates  the  association  among  economic  growth,  sustainable 

energy  consumption  and  carbon  emission  with  additional  variables  including 

fossil fuel energy consumption, natural gas and trade openness. The annual time- 

series data  from  1972  to 2019  is  analysed  using an  auto- regressive distributive 

lag model. Moreover, the  novelty and robustness of the model  are verified using 

dynamic ordinary least squares, and fully modified ordinary least squares. The re-

sults specify that except carbon emission model  equation, there is co- integration 

exists among variables. In terms of the outcomes in the long  term, the consump-

tion  of  fossil  fuels  has  a  notable  impact  on  economic  growth  and  natural  gas, 

whereas the consumption of sustainable energy has  a detrimental effect on  eco-

nomic growth.  Interestingly,  in the  short run,  sustainable  energy consumption 

positively  links  with  trade  openness  and  economic  growth.  Furthermore,  the 

VECM- based Granger  Causality detects  a  one- way causal  linkage of  fossil  fuel 

consumption, trade openness,  carbon emissions and  natural gas with economic 

growth. A  bidirectional causality exists  from carbon emission  to fossil  fuel con-

sumption, suggesting a feedback hypothesis. The study provides a comprehensive 

understanding of the underlying variables. The policymakers can make decisions 

for the efficient  functioning of energy  markets, enhanced production  of energy- 

from- waste material and environmental enforcement  in India related to  air pol-

lution should be strengthened.

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SUSTAINABLE DEVELOPMENT GOALS

2021). India has formed significant paces in achieving the Sustainable Development Goals (SDGs), most prominently in 

achieving universal access to electricity.

The unexpected declaration of attaining net- zero emission by 2070 may have elegantly bounced the pressure on India 

to sign up for an ambitious target. However, to meet these objectives, international trade performs a vital function in the 

‘greening’ of the  energy industry by allowing  the shift of  SE technology and reacting to  the demand for energy  sources 

sustainably. This trend has  led to  numerous trade possibilities,  as well  as importing of  components  and raw materials 

for SE and  finished goods. To achieve  the SE target,  large Indian  companies are investing billions  of dollars  in SE and 

gradually getting rid  of their old fossil fuel- dependent industries. India  needed an extra $500 billion in investments  for 

modernisation, grid expansion and new wind and solar infrastructure (IEEFA,2021). Hence, India must work diligently 

to accomplish these targets on or before the deadline.

India is the sixth- most challenging market in the world for businesses to acquire sustainable resources. The significant 

barriers include each state's differential regulatory frameworks, fragmented policy and pending taxes and charges on ob-

taining sustainable power (Alam et al.,2016; Ahmad & Du, 2017). Interestingly, the variable cost of solar energy module 

production has very consistent. The primary difference is higher fixed expenses, particularly the interest rate on the loans 

needed to  establish the  manufacturing  capacity. Consequently, the research  results will  help to  frame comprehensive 

strategy decisions to solve barriers to achieving SDGs.

The study's other sections are categorised as follows: Section2 covers the Sustainability Outlook of India. In Section3, 

Literature Review is presented and Section4  discusses the Data  and Methodology  employed in this  study. Results and 

Discussion is exhibited in Section5. The Conclusion and Policy Recommendations are suggested in the final section.

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 SUSTAINABILITY OUTLOOK OF INDIA

To  achieve  SDGs,  the  Indian  Government  has  established  enthusiastic  short  to  medium- term  sustainable  electricity 

strategic goals. The  country's target was to  build 175 GW  (Gigawatt) of sustainable  power by 2022. In  2018, the Indian 

Government declared a  new goal of  227 GW (earlier  target was 175  GW) of SE  potential by 2022 and 275  GW by 2027 

(IEA,2019). On 23 September 2019, at the United Nations Climate Summit in New York, India's Prime Minister declared 

a new goal of 450  GW of SE capability without indicating  a deadline. At the end of  November 2019, the grid- connected 

SE potential  was 84 GW,  with 32  GW from  photovoltaic solar (PV),  around 37  GW through  wind generation, and  the 

remainder from hydropower (Eren et al.,2019; Singh & Vashishtha, 2019).

India is  an  influential participant  in global  discussions  on environmental  issues. The  nation's CO2 emissions  have 

enhanced by two points since 2007, representing 4.4%  of global  emissions, while global energy  use has risen by  70% in 

absolute terms.  In  line with  the Paris Agreement,  India submitted  a nationally  determined  contribution, considering 

India's low per capita emanations and growth goals,  with significant conservation initiatives. Even if  India's GDP emis-

sion intensity has decreased according to targeted levels, moving towards a low- carbon electricity supply is a challenge.

In recent decades, India has become more open regarding trade compared to the preceding decades. Moreover, prior to 

1985, the contribution of trade to GDP had been on the decline. The contribution of trade to GDP showed a consistent in-

crease during the period of 1986– 2008. Although the imposition of tariffs and other measures aimed at promoting trade- 

led exports in India quickly had a detrimental effect on trade. From 2009 to 2019, trade openness has been seeing patterns 

of instability, expansion  and contraction. The fivefold  growth from 7.74%  in 1972 to  39.55% in 2019  was recorded. The 

highest trade- to-  GDP ratio was 55.79% in 2012. Figure1  shows that natural gas has a stable trend in all years. However, 

by 2030, India intends to raise the proportion of natural gas to 15% of the energy assortment (PNGRB,2013). It proposes 

that existing demand and infrastructure requirements should be doubled as a vital component of the gas processing cen-

tre. In 2014– 2015, SE was only 17.28%, increasing by 3.97% in 2019– 2020. In August 2021, India had 100.68 GW of the SE 

capacity of the overall installed capacity, targeting 280 GW by 2030 (IBEF,2021).

The reason for choosing these variables to test their impact on each other is that sustainable development has gained 

considerable attention worldwide. Over 193 nations adopted the 2030 Agenda for Sustainable Development. The historic 

agenda outlines 17  SDGs and targets for achieving  peace, dignity and  prosperity for the  planet and humanity  by 2030. 

Indeed, India's rapid economic growth and growing environmental consciousness could force the government to reduce 

fossil fuel  consumption, CO2 emissions  and natural gas  consumption. Recent efforts  to develop renewable energy sec-

tors in India may  also have implications for reducing  carbon emissions, fossil fuel use and natural gas consumption.  A 

total of $14.5 billion was invested in renewable energy, an increase of 125% compared to the fiscal year 2020– 2021. Also, 

in the latest report of  IEA, The Indian government has  set a renewable energy capacity target of  450 gigawatts by 2030.