Do Energy Efficiency, CO2 Emission, And Governance Impact Economic Growth?
Literature Review
During last decades, energy efficiency has become as one of the main offsetting factors of increasing carbon dioxide emissions and energy consumption at international level. However, importance of this energy efficiency has been realised since the begging of industrialisation. Energy consumption has increased significantly and this further has brought negative impacts on natural resources (Xu et al., 2015). The global economy is depended heavily on oil and gas. Due to industrialisation, using of these resources has increased significantly across the world. This further has increased costs and generated imbalances in financial aspects in international economy. Moreover, carbon dioxide emission (CO2) has generated conflicts on environmental protection and sustainable development. This process has linked directly with energy usage that has influenced economical and environmental policies significantly (Mi et al., 2015). In addition to this, institutional quality or governance also plays crucial role to influence economic condition of an economy (Yerrabati & Hawkes, 2015). Proper policy implications and efficient governance helps an economy to grow further while the opposite situation may occur due to inefficient activity of the government.
To understand this situation, this report intends to conduct a comprehensive literature review for measuring relationship between CO2 emission, energy efficiency and governance with economic growth. Through analysing these factors, the report will identify various findings and limitations of these previous researches.
Energy efficiency and economic growth:
Energy efficiency implies the goal for decreasing the amount of energy, which is essential to produce goods and services. Through improving technology or production process more efficiently, the economy can achieve its energy efficiency. It has become a chief concern for policymakers as well as industry (Schandl et al., 2016). Pollution within environment is strongly associated with amount of energy consumption. This is because consumption of more energy helps an economy to generate higher economic development as well as higher pollutant gases. Researchers have developed the casual relationships between energy consumption, emissions and real GDP for a developed country like France (Isik, Dogru & Turk, 2018). These studies have showed a strong and long-term relationship between these factors. Trade plays significant role on economic condition of a country. However, very limited number of researchers have analysed the relation between environmental pollution with trade. According to Bento & Moutinho, (2016), extensive use of energy as well as GDP and openness of trade leads the economy to generate more carbon dioxide. This situation can be observed in China, where economic activity is increasing rapidly. Economic theory based on production and cost gives an outline to understand the process of energy interaction with productivity growth and technical progress. A production function represents the process that how inputs are transformed to outputs in a fixed rate.
According to neo-classical economists, theory of growth, processed materials and energy are considered as intermediate factors. This is because the producer obtains those factors through combining product inputs technically. However, according to other law of no-classical economists, for conducting this technical transformation, producer requires minimum amount of energy. Moreover, this usage can be restricted according to technological capacity for combining and substituting inputs. This means instead of small share related to total production costs, energy acts as pre-condition for economic growth and activity. Thus, energy has comparatively weak impacts on potential growth through become strong constraints under scarcity. Therefore, Kümmel & Lindenberger, (2014) has stated that energy efficiency increases this production capacity while it does not crowd out other investment related to productivity. In some recent quantitative studies, researches have obtained some positive impacts associated with usage of energy efficiency. This further represents a positive relationship between GDP growth and energy efficiency. Moreover, through reducing energy use, energy efficiency improves the condition of consumers and consequently economic activity increases.
Energy efficiency and economic growth
When the physical resources as well as human resources cannot influence economic growth of an economy, economic governance or institution plays a significant role. According to researchers, the concept of good governance can be of various forms, such as rule of law, low corruption levels, comparatively better political stability and higher quality of regulation. In addition to this, appropriate levels of accountability and voices as well as required government effectiveness can help an economy to increase its incentives (Yerrabati & Hawkes, 2015). At the same time, governance helps an economy to reduce transaction costs and information asymmetry. The better governance further leads efficient allocation of resources and consequently conducts smooth activities of markets. This process further influences foreign as well as domestic investors to invest. Moreover, this process also helps existing investors to increase their confidence level. Thus, researchers have stated that through making appropriate laws and policies, governance can make all required elements so that markets can function smoothly. This further can influence economy to grow efficiently. Researchers have done various analyses to understand the impact of governance measures on economic growth in the context of Pacific countries as well as South and East Asia between 1980 and 2012 (Siddique, Nawaz & Majeed, 2016). These analyses have focused one or more government measures and have obtained different outcomes.
Energy efficiency is the most common and effective way to address various issues like climate change, increasing energy prices, energy security. This also addresses other social implications like fuel poverty. Therefore, in incomplete energy markets, technological investments remain below the desired optimal level (Polzin, von Flotow & Nolden, 2016). As a result, the adoption rate as well as diffusion remains low due to absence of incentives and structures of application. Local government experiences troubles for implementing, procuring and managing projects related to energy efficiency. However, these investments can improve financial restrictions during the long-term and this in turn can help municipalities to meet all targets related to climate change. In addition to this, researchers have experimented climate governance in the context of sustainability transitions. According to (), governance is considered as the patterns, which appear from various activities related to governing social, administrative and political factors. On the other side, some researchers have stated that governance means policy articulation, polity and politics. Policy means a comparatively purposive and stable course of actions that include various actors dealing with any concerned matter. Due to close links between policy and governance, government experiments sometimes consider as policy experiments.
Local governments play significant roles for implementing policy in the context of climate. Researchers have highlighted the importance of cities regarding their contribution for developing low-carbon economy. Those local governances reduce emissions through conducting their own operations. Municipalities have implemented new standards of energy efficiency. For doing this, these governments invest in alternative systems of transportation and infrastructure (Kivimaa et al., 2017). This alternative system considers transit, bicycle lanes, electric vehicles and so on. Moreover, governance occurs in the form of advanced management of solid waste that further helps a nation to reduce the level of green house gases as well as other substances from environment. In this context, the role of international retail sector can also be described. Response of this sector based on issues of climate change helps researchers to analyse the influence and impact of various forms of governance (Visscher, Meijer, Majcen & Itard, 2016). This governance conducts different corporate practice. This specified retail sector has noticeable carbon footprint. For instance, in the US, retail sectors pay huge amount of bill for energy purposes due to emission of green house gas emission. Emissions in this sector are directly regulated with other information-based, economic, and voluntary forms of policy.
Governance and Economic growth
After discussing some relevant and standard literatures, it can be said that energy efficiency, carbon dioxide emission and governance has close linkage with economic growth. Energy efficiency helps an economy to use minimum amount of resources for generating sufficient amount of energy. Energy is an important factor to drive economic growth of any country. Some previous literatures have developed this positive relationship between energy efficiency and economic growth. On the other side, governance also plays significant role to develop economic condition through implementing proper strategies and policies. This policy implementation plays vital role to control green house gas in environment and implements energy efficiency. Thus, energy efficiency and economic growth has close relationship to improve economic condition of a country. Through industrialisation, economy has generated huge amount of carbon dioxide. Moreover, through green house gases, a country has generated huge amount of green house gases. Consequently, industries pay some amount to compensate these negative externalities. This has influenced investment within the financial sector adversely and inequality has been generated across the sector. This further has made some economic constraints and for this a country cannot develop properly.
However, this research has some limitations. This research paper does not consider proper empirical research methodology through collecting proper statistical data. Through forming proper research objectives, aims and questions, one can analyse the impact of these factors of economic growth more efficiently. In this context, primary data and secondary data play important role.
References:
Bento, J. P. C., & Moutinho, V. (2016). CO2 emissions, non-renewable and renewable electricity production, economic growth, and international trade in Italy. Renewable and Sustainable Energy Reviews, 55, 142-155.
Isik, C., Dogru, T., & Turk, E. S. (2018). A nexus of linear and non?linear relationships between tourism demand, renewable energy consumption, and economic growth: Theory and evidence. International Journal of Tourism Research, 20(1), 38-49.
Kivimaa, P., Hildén, M., Huitema, D., Jordan, A., & Newig, J. (2017). Experiments in climate governance–a systematic review of research on energy and built environment transitions. Journal of Cleaner Production, 169, 17-29.
Kümmel, R., & Lindenberger, D. (2014). How energy conversion drives economic growth far from the equilibrium of neoclassical economics. New Journal of Physics, 16(12), 125008.
Mi, Z. F., Pan, S. Y., Yu, H., & Wei, Y. M. (2015). Potential impacts of industrial structure on energy consumption and CO2 emission: a case study of Beijing. Journal of Cleaner Production, 103, 455-462.
Polzin, F., von Flotow, P., & Nolden, C. (2016). Modes of governance for municipal energy efficiency services–The case of LED street lighting in Germany. Journal of cleaner production, 139, 133-145.
Schandl, H., Hatfield-Dodds, S., Wiedmann, T., Geschke, A., Cai, Y., West, J., … & Owen, A. (2016). Decoupling global environmental pressure and economic growth: scenarios for energy use, materials use and carbon emissions. Journal of Cleaner Production, 132, 45-56.
Siddique, H. M. A., Nawaz, A., & Majeed, M. T. (2016). The Impact of Institutional Governance on Economic Growth: A Panel Data Analysis. Bulletin of Business and Economics (BBE), 5(4), 210-219.
Visscher, H., Meijer, F., Majcen, D., & Itard, L. (2016). Improved governance for energy efficiency in housing. Building Research & Information, 44(5-6), 552-561.
Xu, P., Chan, E. H., Visscher, H. J., Zhang, X., & Wu, Z. (2015). Sustainable building energy efficiency retrofit for hotel buildings using EPC mechanism in China: analytic Network Process (ANP) approach. Journal of cleaner production, 107, 378-388.
Yerrabati, S., & Hawkes, D. (2015). Economic governance and economic growth in south and East Asia & Pacific Region: evidence from systematic literature reviews and meta-analysis. Advances in Economics and Business, 3(1), 1-21.
Yerrabati, S., & Hawkes, D. (2015). Economic governance and economic growth in south and East Asia & Pacific Region: evidence from systematic literature reviews and meta-analysis. Advances in Economics and Business, 3(1), 1-21.