The long-run relationships between energy efficiency and environmental performance: Global evidence

Abstract

Owing to recent climate change concerns, the interaction between energy and environmental governance has received greater attention. Therefore, this study investigates the causal relationship between energy efficiency and environmental performance for 129 countries, using the panel cointegration and panel-based error correction models for the period 2002–2012. Our results corroborate that there exists a long-term equilibrium cointegrating relationship between energy efficiency and environmental performance, and that the panel fully modified ordinary least squares estimations present a positive relationship between variables. In accordance with the panel vector error correction model estimation, evidence confirms a bi-directional causal relationship among variables for the long term in the given sample of 129 countries. In addition, the sub-samples’ analyses present causalities running from energy efficiency to environmental performance in the long run, no matter for Organisation for Economic Co-operation and Development (OECD) or non-OECD countries, but a short-run relationship is seen only in OECD members. Evidence also shows an absence of causal direction from environmental performance to energy efficiency in both groups of countries. The policy implication is that an improvement in environmental quality should be based on promoting energy efficiency. However, given that energy efficiency still has not achieved improvement under strong environmental performance, this is a big challenge that cannot be avoided for both developing and developed countries. We also offer several constructive suggestions for how to promote energy efficiency.