Existence of Environmental Kuznets Curve (EKC) in Indonesia: Evidence from Fossil Fuel and Renewable Energies

Abstract

This paper tests for the short and long-run relationship between economic growth, carbon dioxide (CO2) emissions and energy consumption using the Environmental Kuznets Curve (EKC) by using both the aggregated and disaggregated energy consumption data in Indonesia. The Autoregressive Distributed Lag (ARDL) methodology approach was used to test the cointegration relationship; and the Granger causality test, based on the vector error correction model (VECM), to test for causality. This study does not support an inverted U-shaped relationship (EKC) when aggregated energy consumption data was used. When data was disaggregated based on different energy sources such as oil, coal, gas and electricity, the study shows evidences of the EKC hypothesis. The long-run Granger causality test shows that there is two-way causality between economic growth and CO2 emissions, with coal, gas, electricity and oil consumption. This suggests that decreasing energy consumption such as coal, gas, electricity and oil appear to be an effective way to control CO2 emissions, but it will disturb economic growth at the same time. Thus, exact policies related to the efficient consumption of energy resources and consumption of renewable sources are required to solve this problem.