Decoding the Link between Renewable Energy and CO2 Emissions: A VECM Analysis of Growth, Energy Consumption, and Population Influences

Abstract

This study investigates the dynamic interplay between carbon dioxide (CO₂) emissions, renewable energy consumption, economic growth, energy use, and population in Pakistan using annual data from 1990 to 2023. Employing a Vector Error Correction Model (VECM), the analysis captures both short-run dynamics and long-run relationships among these variables. The results confirm that all variables are integrated of order one, I(1), and co-integrated, indicating the existence of a long-term equilibrium relationship. Johansen co-integration tests reveal two co-integrating vectors, justifying the application of VECM. The error correction term is statistically significant, suggesting a stable adjustment toward equilibrium aftershocks. Findings highlight that increased renewable energy consumption is associated with reduced CO₂ emissions, while population growth and higher energy use contribute positively to emissions. Economic growth initially raises emissions but may later support reductions through technological advancement, consistent with the Environmental Kuznets Curve (EKC) hypothesis. The results underscore the importance of enhancing renewable energy deployment and energy efficiency to achieve sustainable economic growth while mitigating environmental degradation.