Energy, Environment and Growth Nexus in Sri Lanka: An Empirical Exploration

Fernando, Warnakulasooriya Lakmini Priyanthi (2014). Energy, Environment and Growth Nexus in Sri Lanka: An Empirical Exploration Master's Thesis, School of Economics, The University of Queensland.

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Author Fernando, Warnakulasooriya Lakmini Priyanthi
Thesis Title Energy, Environment and Growth Nexus in Sri Lanka: An Empirical Exploration
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2014-11-11
Thesis type Master's Thesis
Supervisor Mohammad Alauddin
Total pages 78
Language eng
Subjects 14 Economics
Formatted abstract
Energy is a highly significant sector in the radically changing economic context. Ballooning energy demand due to economic growth drives the world development path. The ever-increasing energy demand is met mainly through the incineration of fossil fuels. Energy-related effluent emissions deplete environmental quality and trigger extreme climatic changes. Although developed countries are responsible for effluent emissions, poor countries are more vulnerable to the adverse impacts on the environment due to their constrained resource availability.
Sri Lanka is a small tropical island in South Asia with an average annual GDP growth of around 4.2% in the 1970s and 1980s which has significantly increased up to 8.2% during 2010-2011 owing to stable macroeconomic indicators. The average annual energy demand grew by 3.5% whereas energy consumption and CO2 emissions increased by 117.1% and 282.6% respectively during 1980-2010. Sri Lanka’s increasing energy demand is fulfilled mainly through thermal power using fossil fuels (oil and coal). Fossil fuel share in the primary energy-mix has increased by 91% during 1976-2010. Dependency on fossil fuel energy generation is not sustainable for Sri Lanka mainly due to high import cost (as total demand for oil and coal need to be imported) and probable adverse impacts on the environment.
Therefore, this study investigates the energy-environment-growth nexus in the Sri Lankan context over the period 1970-2011. A multivariate model and time series techniques such as cointegration and Granger causality test are employed to determine the link between energy consumption, CO2 emissions and economic growth. The empirical results suggest that there is no long-run relationship between the variables and unidirectional Granger causality runs from real GDP to energy consumption. This implies that the government can pursue conservative energy policy in the long-run without impeding its growth targets.
Keyword energy consumption
CO2 emission
economic growth
climate change
environment degradation
fossil fuel

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