The nexus between carbon dioxide emissions, economic growth and energy transition : a South African case study

Abstract

The nexus between carbon dioxide emissions (CO2), economic growth and energy transition is a crucial aspect in mitigating climate change in developing countries, including South Africa. However, with South Africa being highly dependent on fossil fuels and especially, coal generated energy, this relationship cannot be overlooked. Thus, the study investigated the nexus between CO2 emissions, economic growth and energy transition. The Autoregressive Distributed Lag (ARDL) methodology and Granger causality tests were applied on secondary time series data spanning the period 1991-2020 to meet the study’s objectives. CO2 was regressed against economic growth and energy transition with trade openness and population growth added as control variables. The results showed a long-run relationship between the variables with CO2 emissions positively related to economic growth, trade openness and renewable energy consumption while being negatively related to population growth. The short-run results found CO2 emissions to be negatively related to trade openness and population growth while being positively related to economic growth and renewable energy consumption. The Error Correction Model (ECM) term was found to be 61.66% and highly significant at 1%, suggesting a reasonably high speed of adjustment. The Granger causality test proved causality between CO2 emissions, economic growth and energy transition. This results therefore proved the Environmental Kuznets Curve (EKC) hypothesis & supported the statement that South Africa is still a developing country, and that economic growth directly leads to environmental degradation through an increase in CO2 emissions. Stability test was used to check for the robustness of the time series model over time because an unstable model could produce spurious results. Therefore, to foster innovation in renewable energy technologies, increased funding for research and development is crucial. This can lead to breakthroughs that make renewable energy more accessible and affordable. Highlighting that policymakers should prioritize investments in renewable energy infrastructure to reduce reliance on coal and lower CO2 emissions, thereby promoting sustainable economic growth.