Energy Use, Income and Carbon Dioxide Emissions: Direct and Multi-Horizon Causality in Canada

Year 2014, Volume: 4 Issue: 2, 178 - 188, 01.06.2014

Patrick Withey

Abstract

This paper explores the causal relationship between energy, emissions and income in Canada for the period 1960- 2005. This study explores these relationships using the Toda Yamamoto approach in a multivariate framework including labour and capital as auxiliary variables. We also test the hypothesis of indirect or multi-horizon Granger non-causality between these variables, since causal effects may occur more than one-period-ahead, as is assumed by the standard Granger non-causality test. We find that there is bi-directional direct causality between income and energy use in Canada, and no other channels of causality between the three variables. However, indirect Granger non-causality testing shows that there is bi-directional causality between all variables in the system. This result is contrary to other results in the literature, and has different implications for energy and environmental policy.

Keywords

Energy use, Greenhouse gas emissions, Multi-horizon Granger causality, Canada