Time-varying causality between energy consumption, CO 2 emissions, and economic growth: evidence from US states

Abstract

This study is the first attempt to investigate the relationship between CO₂ emissions, energy consumption, and economic growth at a state level, for the 50 US states, through a time-varying causality approach using annual data over the periods 1960–2010. The time-varying causality test facilitates the better understanding of the causal relationship between the covariates owing to the fact that it might identify causalities when the time-constant hypothesis is rejected. Our findings indicate the existence of a time-varying causality at the state level. Specifically, the results probe eight bidirectional time-varying causalities between energy consumption and CO₂ emission, six cases of two-way time-varying causalities between economic growth and energy consumption, and five bidirectional time-varying causalities between economic growth and CO₂ emission. Moreover, we examine the traditional environmental Kuznets curve hypothesis for the states. Notably, our results do not endorse the validity of the EKC, albeit the majority of states support an inverted N-shaped relationship. Lastly, we can identify multiple policy implications based on the empirical results.