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Consumption of liquefied petroleum gas and the EKC hypothesis in South Asia: evidence from cross-sectionally dependent heterogeneous panel data with structural breaks

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Abstract

Economic growth without accounting for the simultaneous environmental deterioration that accompanies the achievements is doubtful to be sustained over time. Thus, global economies in the contemporary era have reached a consensus in aligning their respective growth policies with the environmental welfare aspects. Thus, economic and environmental welfares are envisioned to take place in tandem. However, as per the environmental Kuznets curve (EKC) hypothesis, economic growth in the initial stages can trigger a trade-off between economic and environmental well-beings which, beyond a certain growth threshold, can be expected to be diminished. Hence, it is pertinent to identify the key factors that can attribute to lower environmental hardships alongside economic growth in the long run. Against this milieu, this paper investigates the authenticity of the EKC hypothesis for aggregate and disaggregated greenhouse emissions in the context of six South Asian economies namely Bangladesh, India, Pakistan, Sri Lanka, Nepal and Bhutan. Annual data from 1980 to 2016 is employed to conduct panel data estimation exercises that are robust to handling cross-sectional dependency and structural break issues. Besides, the impacts of liquefied petroleum gas (LPG) use on the economic growth–greenhouse emissions nexus are also explored. The findings from the econometric analyses validate the existence of the EKC hypothesis for both aggregate and disaggregated greenhouse emission figures. Moreover, the country-specific EKC analysis reveals heterogeneity of the EKC findings across the concerned South Asian countries. However, LPG consumption is found to homogenously reduce the greenhouse emissions within all the economies. Finally, the heterogeneous panel causality test results reveal unidirectional causation stemming from economic growth to aggregate greenhouse emissions. Furthermore, statistical evidence regarding bidirectional causality between LPG consumption and aggregate greenhouse emissions and unidirectional causalities running from LPG consumption to carbon dioxide, methane and nitrous oxide emissions are also ascertained. These findings collectively imply that LPG can potentially act as a transitional fuel for the South Asian countries prior to undergoing renewable energy transition. Thus, it is recommended to promote the use of LPG for bridging the existent energy crises and simultaneously mitigating environmental pollution in South Asia.

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Notes

  1. For more in-depth understanding of the RET phenomenon, see Murshed (2019a, 2020b).

  2. It must be acknowledged that natural gas is relatively clean compared to LPG. However, under circumstances where the supply of natural gas is limited, LPG can be the second best fuel choice.

  3. The selection of the South Asian countries is based on data availability which led to leaving out Afghanistan and Maldives from the empirical analyses.

  4. An overview of the trends in the greenhouse emissions across the selected South Asian economies is provided in Table 6 in Appendix.

  5. For more information on the PHH, see Bogmans and Withagen (2010) and Banerjee (2020).

  6. Since in majority of the cases there is evidence of two SB, only the first and second break years are used to prepare the break year dummies for inclusion into the respective models.

  7. The estimated growth thresholds, and the relevant calculation procedure, are not reported for ensuring brevity. However, these can be supplied if requested.

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Authors and Affiliations

  1. School of Business and Economics, North South University, Dhaka, Bangladesh

    Muntasir Murshed

  2. Department of Economics, University of Karachi, Karachi, Pakistan

    Syed Rashid Ali

  3. Department of Economics and Politics, Vidya Bhavana, Visva Bharati University, Bolpur, West Bengal, India

    Suvajit Banerjee

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  1. Muntasir Murshed
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  3. Suvajit Banerjee
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Correspondence to Muntasir Murshed.

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Appendix

Appendix

1.1 The trends in greenhouse emissions across South Asia

In the past century, South Asia has registered a rise in the temperature levels by almost 0.75 °C (ADB 2014) which can largely be credited to the surging volumes of greenhouse emissions across this region. Table 6 in Appendix presents the trends in the emission of GHG within the selected South Asian economies. The total GHG emissions figures, in terms of kilotons of CO2 equivalent per 1000 people, indicate that only Bangladesh and Nepal had managed to reduce their respective aggregate greenhouse emissions by 11.36% and 30.77%, on average, between 1980 and 2016. These can be attributed to the gradual shift in the dependence from imported oils to indigenous natural gas for power generation purposes in Bangladesh, following the oil price shocks in the international crude oil markets, while in the context of Nepal the reduction in the emissions can be understood from the fact that a lion’s share of the nation’s overall final energy consumption is sourced from renewable energy resources. In contrast, the corresponding aggregate greenhouse emissions levels in India, Bhutan, Pakistan and Sri Lanka have surged by 48.43%, 73.29%, 55.98% and 23.68%, respectively.

Table 6 Greenhouse emissions across selected South Asian economies (1980–2016).
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Table 7 The descriptive statistics and correlative matrix
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Table 8 Cross-sectional dependency and slope heterogeneity test results
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Table 9 Panel long-run elasticity estimates from the CUP-FM and CUP-BC panel regression analyses
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Table 10 Time-series long-run elasticity estimates from the FMOLS regression analyses
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Although the trends in the aggregate greenhouse emission figures exhibit heterogeneity across the selected South Asian economies, disaggregation of greenhouse emissions into CO2 emissions shows that the average volumes of CO2 emissions, in terms of kilotons per 1000 people, have unanimously gone up. As far as CH4 emissions are concerned, the average CH4 emissions, in terms of kilotons of CO2 equivalent per 1000 people, have declined in Bangladesh, India, Nepal and Sri Lanka by 29.52%, 21.45%, 43.63% and 22.09%, respectively, while that in Bhutan and Pakistan the corresponding CH4 emission figures on average have increased by 23.42% and 22.07%, respectively. The trends in NO emissions exhibit parity in the sense that three of the selected South Asian economies registered declining trends (Nepal, Pakistan and Sri Lanka), while the other three accounted for rising trends (Bangladesh, Bhutan and India) in their respective levels of NO emissions. Therefore, it is pretty evident from the overall trends that apart from CO2, the trends in the emissions of aggregate of GHG, CH4 and NO are heterogeneous across the panel of the South Asian economies.

It is to be noted that the absolute volumes of both the aggregate and disaggregated greenhouse emission figures have homogenously increased across the concerned nations which cumulatively have stimulated the rising temperatures levels across South Asia. It is anticipated that the greenhouse emissions associated with energy use within the industry and transport sectors of Bangladesh, Bhutan, Nepal, Sri Lanka and the Maldives would rise from 58 million tonnes to a staggering 245 million tonnes of CO2 equivalent between 2005 and 2030 (ADB 2013). However, replacing the high carbon-emitting fossil fuels with relatively cleaner alternatives could lower down this projected growth in the greenhouse emissions. Moreover, emissions from solid waste disposal across Bangladesh, Bhutan, India, Nepal and Sri Lanka, in particular, are also expected to rise by 600 million tonnes over the same time period (ADB 2013). Hence, failure to reduce the emissions of GHG into the atmosphere could also go on to marginalize the national income levels by as much as 2%, 1.4%, 1.8%, 2.2% and 1.2%, respectively, for Bangladesh, Bhutan, India, Nepal and Sri Lanka (ADB 2014).

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Murshed, M., Ali, S.R. & Banerjee, S. Consumption of liquefied petroleum gas and the EKC hypothesis in South Asia: evidence from cross-sectionally dependent heterogeneous panel data with structural breaks. Energ. Ecol. Environ. 6, 353–377 (2021). https://doi.org/10.1007/s40974-020-00185-z

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