Pakistan is a developing country in South Asian countries, economy of Pakistan is growing rapidly and it is expected that the economic growth of Pakistan will continue with same trend in the future. Pakistan’s economy depends on agriculture, and agriculture is the main dominant sector of the country, but due to repaid growth of industrial sector in Pakistan, the agriculture land is cutting. Besides this, rapid increase in population causes deforestation; Pakistan is top ranked country in Asian countries that faces the problem of deforestation. Increase in economic growth and industrial sectors use energy for growth that causes environmental degradation. Pakistan is facing high demand of energy for which traditional energy sources are used to meet its fast increasing demand for energy. Wolde-Rufael and Menyah (2010) stated that use of traditional energy resources causes to discharges carbon dioxide that helps to deteriorate environmental quality. Ahmed et al. (2015) stated that environmental degradation affect the environment and health of the human being in Pakistan. Yang and Li (2017) stated that environmental degradation is caused by vast amount of greenhouse gas emissions, including carbon dioxides, nitrous oxide, and methane. Shahbaz et al. (2013) stated that use of fossil fuels for daily life, massive smoke expulsion from the factories and consumption of wood as an energy source boost the CO2 emissions. Carbon dioxide emissions have a destructive impact on the economy and other sectors such as agriculture and forestry.
Chaudhry (2010); Pao and Tsai (2010); Siddiqui (2004) investigated the association between energy consumption, economic growth, and sustainable environment. Most researches have been done for developed countries such as European countries and American countries (Kasman and Selman 2015). Early researches on the same subject have generally concluded that the development of economy and energy consumption causes the CO2 emissions.
Several research studies have pointed out the relationship between the development of the economy, non-renewable energy and CO2 emissions, that is essential for understanding and refining the development pattern of developing countries like Pakistan. The societies which have gifted with plentiful natural resources can efficiently mitigate import of fossil sources and emissions of carbon dioxide. Balsalobre et al. (2018) stated that energy strategy implementation is validated to decrease dependence on the use of non-renewable energy sources. Non-renewable energy sources still profoundly influence the energy mix. This explicates the sustainability of both energy sources, i.e., renewable and non-renewable that may occur in the long-run.
The main objective of this research study is to investigate the association between energy consumption, economic growth, and carbon dioxide emission in Pakistan. Different researchers identified that environmental degradation is caused by using non-renewable energy consumption and economic growth in developed countries. This research study will help to clear the gap between early researches by controlling the model for energy consumption, economic growth, and CO2 emissions. This research study used newly developed econometric techniques the Auto-Regressive Distributive Lag (ARDL) bound testing for cointegration. ARDL model have different advantages as compared to other cointegration method. ARDL model can be applied if the variables are stationary at level or first difference of both of them while other cointegration methods need same order of integration. Different lag can be used for dependent and independent variables (Pesaran et al. (2001). This study will provide a new vision for policymakers to design key policy instruments on balancing economic growth and environmental quality.
Acar and Lindmark (2017) investigated the convergence of CO2 emissions in OECD countries by using (oil vs. coal) as energy source. The authors divided the study period into two sub-periods. The first period covers the oil price shocks of OPEC, where the OECD oil policy was to a great extent governed by energy security concerns and Cold War strategic considerations. The second period correspond rise climate policy in several OECD countries. Due to such contextual differences, oil and coal behave differently in the two sub-periods on economic growth.
Asumadu-Sarkodie and Owusu (2017a, 2017b) stated that long-run equilibrium associations exist between environmental degradation, electricity use, economic growth and industrialization. The examined results of variance decomposition indicated that use of electricity and economic growth increase the environmental degradation by 7% 20% respectively. They recommended that in future using clean energy can decrease environmental degradation in Sierra Leone.
Destek (2017) indicated that economic development is positively affected by non-renewable biomass energy consumption countries. Fan and Lei (2017) examined the associations between environmental degradation transportation and economic development in Beijing by using time series data for econometric analysis from 1995 to 2014. The estimated results pointed out that transportation and CO2 emissions have a positive influence on economic growth.
Işik et al. (2017) applied Autoregressive distributed lag (ARDL) model to check the association between the study variables. The estimated results revealed that economic growth, the growth of financial system, international trade and tourism expenditures positively impact the Greece’s CO2 emissions. They stated that tourism, as a leading sector in the Greek economy, has severe negative environmental impacts for Greece in the long run. Therefore, they suggested that Greece should actively take into consideration this threat from the tourism sector as this one sector dominates the whole Greek economy.
Isik et al. (2019) investigated the impact of real GDP, population, and renewable energy and fossil energy consumptions on CO2 emissions in ten US states from 1980 to 2015. The examined results indicated that the EKC hypothesis is valid for the following states Florida, Illinois, Michigan, New York, and Ohio. The results indicated that fossil energy consumption have negative impacts on CO2 emission levels in Texas while energy consumption having positively influence on CO2 emissions in Florida but this impact is lower as compared to other states of US.
Azam et al. (2016) inspected the influences of CO2 emissions, energy use, trade, and human capital on economy growth from 1971 and 2013 for China, the USA, India, and Japan by utilizing panel fully modified ordinary least squares (FMOLS) for checking the association among the study variables. The examined results pointed out that CO2 emissions and energy consumption negatively and significantly influences the economic growth while trade and human capital positively and significantly influences the economic growth.
Hanif (2018) studied the influences of economic growth; urban expansion; and consumption of fossil fuels, solid fuels, and renewable energy on CO2 emission in Sub-Saharan Africa economies from 1995 to 2015 by utilizing the GMM model for examination of the association among the study variables. The examined results indicated that consumption of fossil and solid fuels positively impact the CO2 emissions while renewable energy helps to decrease the CO2 emissions.
Saboori et al. (2017) examined the association of oil consumption, economic growth and with environmental degradations in three Asian countries from 1980 to 2013 by applying Johansen cointegration test for checking the relationship among the study variables. The examined results indicated that uni-directional causality running from oil consumption to economic growth in China and Japan, while oil consumption to CO2 emissions in South Korea.
Bhat (2018) studied the impact of energy consumption, economic growth on carbon dioxide from 1992 to 2016 by utilizing Panel ARDL model for checking the association among the study variables. The examined results indicated that capital, labor, population, per-capita income, and non-renewable energy consumption positively impact the CO2 emissions.
Sulaiman and Abdul-Rahim (2017) investigated the association of CO2 emission, energy consumption and economic in Malaysia from 1975 to 2015 by utilizing ARDL model. The examined results indicated that economic growth is not impacted by by energy consumption and CO2 emission while energy consumption and economic growth positively influence the CO2 emission.
Tamba et al. (2017) inspected the impact of gasoline energy consumption on economic growth in Cameroon by utilizing autoregressive vector (VAR) model and Wald test for testing causality. The estimated results showed that no long-term relationship exists among the study variables. Bidirectional causality relationship between gasoline consumption and economic growth exists in Cameroon. The estimated results showed that reducing gasoline consumption without appropriate and established energy policies are not a possible solution to maintain Cameroon’s economic growth.
Apergis et al. (2010) and Zoundi (2017) stated that renewable energy exploitation was restricted by different conditions and the level of economic growth in the low-income countries. Sinha and Shahbaz (2018) stated that the high cost of initial stage of renewable energy development results demotivate in developing countries to invest in renewable energy sources. It appears that promoting renewable energy in some low-income countries may lead to restrain their economic progress in the short run. Inglesi-Lotz and Dogan (2018) suggested that shifting energy consumption away from fossil fuels to renewable energy sources is a challenge for developing countries. Different energy structures between the developing and developed countries are different because of technological and economic conditions.