How does carbon emission affect the economy?

Abstract

The objective of the study is to determine the effect of carbon (CO2) emissions, energy consumption and the usage of renewable energy on the Gross Domestic Product. Using Malaysian data from 1990 to 2020, this study employs multivariate VAR estimation, namely the impulse response function and the Toda-Yamamoto Granger causality method to identify the relationships between the variables. The findings show a significant and reciprocal relationship between GDP and energy use. However, the consumption of renewable energy has little impact on the GDP due to the country's low levels of renewable energy consumption in comparison to its usage of fossil fuels. Since renewable energy plays a critical part in lowering carbon emissions, its usage needs to be intensified to fully have an impact on the economy. Hence, policies to reduce carbon emissions, such as incentives for adopting green technology and production standards, should be emphasized.