Long-run Dynamics of Sulphur Dioxide Emissions, Economic Growth and Energy Efficiency in China

Abstract

This paper estimates the linkages among total Sulphur dioxide (SO2) emissions, total GDP and energy efficiency using China’s provincial panel data from 2002 to 2015. We investigate total emissions rather than per capita emissions or ambient concentrations, since it is total emissions that the environment cares about. Energy efficiency is estimated using stochastic frontier analysis and decomposed into both persistent and transient efficiency. We then investigate the long-run dynamics among SO2 emissions, economic growth and energy efficiency by employing the panel-based error correction model and taking the effects of cyclical variations into account. Our analysis shows that GDP has a positive impact on total SO2 emissions in the short run and gains in energy efficiency have a significant negative effect on emissions in the long run. By controlling the effects of business cycle, the effects of GDP on emissions remain positive in both short and long run. Cross-sectional analysis provides similar insights. We argue that economic growth itself is an emission generator. Therefore, the government needs to establish a long-run strategy to curb the emissions by improving energy efficiency.

Keywords: Sulphur dioxide emissions; energy efficiency; stochastic frontier analysis; error-correction model