Abstract
The environment that governs the relationships between energy consumption, carbon dioxide (CO2) emissions and gross domestic product (GDP) in the G7 countries changes over time due to variations in economic growth, regulatory policy and technology. Using a novel approach that may detect causalities when the time-constant hypothesis is rejected, we find significant time-varying Granger causalities among the variables under consideration. There is bidirectional causality between GDP and energy consumption for Japan, unidirectional causality running from GDP to energy consumption for Italy, and unidirectional causality running from energy consumption to GDP for the resource country Canada. Moreover, the results also show a bidirectional time-varying causality between energy consumption and CO2 emissions for the United States, and causality from energy consumption to CO2 emissions for France. Finally, while we find significant time-varying causalities running from GDP to CO2 emissions for Italy and Japan, the finding of inverted N-shaped curves (Italy and Japan) lends no support to the traditional Environmental Kuznets Curve (EKC) hypothesis for these countries. It implies that environmental policy and economic growth should go hand in hand. Other policy implications of the empirical results have been proposed.
•The links between energy consumption, CO2 emissions and GDP are examined.•We use a novel approach to detect time-varying (TV) causalities.•Data for the G7 countries excluding Germany are considered.•We find some evidence of bidirectional TV causality between variables of interest.•The inverted N-causality curves lend no support to the traditional EKC hypothesis.