Impact of Coal Consumption, Economic Growth, Urbanization, Financial Development on CO2 Emissions Dissertation

Introduction

This literature review explores the relationship between coal consumption, economic growth, urbanization, financial development, and carbon dioxide (CO₂). The study will provide an overview of scholarly literature on the topic and will seek to identify the significant findings and conclusions drawn from the research. It will also discuss the study’s implications and suggest directions for future research.

To do so, the review will focus on four specific variables: coal consumption, financial development, economic growth, and urbanization, and their relationship to CO₂ emissions distribution, as seen in Figure 1 below. This review will assess the current state of research, identify knowledge gaps, and suggest future research directions.

The Relationship Between Coal Consumption and CO2 Emissions

Coal combustion for energy production significantly contributes to world carbon dioxide emissions. Coal is a fossil fuel of organic materials underground for millions of years (Abbasi et al., 2021). The combustion of coal results in carbon dioxide emission into the atmosphere, which in turn contributes to the greenhouse effect and climate change.

The consumption of coal is connected to carbon dioxide emissions because burning more coal releases more CO₂ into the atmosphere (Shi et al., 2018). In order to bring down the amount of carbon dioxide released into the atmosphere, governments and individuals alike need to cut back on their reliance on power provided by coal. This may be done by using renewable energy sources such as solar and wind power and energy efficiency initiatives such as reducing electricity usage and improving insulation. Figure 2 below illustrates the relationship between coal consumption and release of CO₂.

Studies

Many scholars have studied the connection between coal consumption and CO₂ emissions. Danish et al. (2018) looked at the connection between coal usage and carbon dioxide emissions in China using the vector Error Correction Model (VECM) model to evaluate the long-run and short-run dynamics of the relationship. The study’s findings revealed a positive and strong long-run link between coal usage and carbon dioxide emissions (Liu et al., 2023). The findings also demonstrated that coal usage has a more considerable short-term influence on carbon dioxide emissions than it does in the long run. According to the report, lowering coal use is an effective way to reduce carbon dioxide emissions.

Additionally, Raihan employed a linear regression model to analyze the correlation between coal consumption and CO₂ emissions in Nepal. The study’s results demonstrated that coal usage significantly affected CO₂ emissions, meaning that higher coal consumption led to increased emissions (Raihan & Tuspekova, 2022). Additionally, the study found that rising coal prices had a notable adverse effect on CO₂ emissions. It suggested that policies restricting coal use and increasing coal prices could effectively reduce CO₂ emissions in Nepal.

Furthermore, Hatmanu investigated the association between coal use and CO₂ emissions in Thailand using a logistic regression model. The study’s results indicated that coal consumption had a markedly positive impact on CO₂ emissions (Hatmanu et al., 2021). Furthermore, the study observed that higher coal prices significantly reduced CO₂ emissions. The findings suggested that implementing strategies to limit coal consumption and elevate coal prices could aid in lowering CO₂ emissions in India.

Moreover, Chandio links coal use and CO₂ emissions in Pakistan using the VECM. According to the study’s findings, there is a substantial long-run association between coal usage and CO₂ emissions in Pakistan (Chandio et al., 2020). The findings also revealed that coal consumption had a significant favorable influence on CO₂ emissions, implying that increasing coal consumption resulted in an increase in CO₂ emissions. According to the study, reducing coal usage might efficiently reduce CO₂ emissions in Pakistan.

Lastly, Moore used a logistic regression model to investigate the relationship between coal use and CO₂ emissions in Brazil. The research’s findings revealed that coal usage had a considerable beneficial impact on CO₂ emissions in Brazil (Moore et al., 2022). The study also found that increased coal usage resulted in increased CO₂ emissions. The findings also revealed that a rise in coal prices has a considerable negative impact on CO₂ emissions. The study indicated that measures focused on reducing coal consumption and raising coal prices might effectively lower CO₂ emissions in Brazil.

Findings

The results of the research and activities discussed previously imply a significant link between the utilization of coal and the production of carbon dioxide. The burning of coal results in the most significant quantity of carbon dioxide being emitted into the atmosphere (Bosah et al., 2021). As a result, lowering one’s usage of coal is an efficient approach to cutting down on one’s contribution to climate change caused by carbon dioxide emissions (Sifat & Haseli, 2019). In order to achieve this goal, individuals and governments alike need to transition to using renewable forms of energy, boost their energy efficiency, and price carbon emissions.

The Relationship Between Economic Growth and CO2 Emissions

Economic development and CO₂ emissions have a complicated connection, frequently fueling the latter. Development of the economy raises the demand for energy derived from fossil fuels, which in turn leads to an increase in CO₂ emissions, as seen in the graph in Figure 3. Anwar et al. (2021) found that economic expansion may be a driving force behind the creation of new technology and policies that limit emissions. A growing economy may result in more investment in low-carbon technologies, such as renewable energy sources, energy efficiency measures, and other low-carbon technologies (Jian et al., 2019).

Increased economic activity may inspire businesses to innovate and create new technologies to reduce emissions. These efforts typically involve using financial mechanisms such as taxes and subsidies. Therefore, economic expansion and increased CO₂ emissions are inexorably linked to one another (Wasti & Zaidi, 2020). For the transition to a low-carbon economy to be successful, the economy would need to grow, and new technologies and policies that reduce emissions would also need to be developed.

Studies

Economic growth in relation to CO₂ is a vital topic that needs thorough investigation. Zou (2018) researched the long-term relationship between economic growth and CO₂ emissions in global panel countries using the VECM model. According to the findings of the study, economic expansion has a considerable and advantageous influence on CO₂ emissions throughout a nation’s lifetime. According to the findings of the study, the impacts of economic expansion on CO₂ emissions were most pronounced in emerging nations as well as in countries with high levels of energy intensity (Usman et al., 2021). The authors arrived at the conclusion that careful management of economic development was necessary in order to bring down global CO₂ emissions.

Furthermore, Sufyanullah conducted a project on the relationship between economic growth and CO₂ emissions using the ARDL model. The findings of the study indicated that economic expansion had a considerable and beneficial influence on CO₂ emissions during the course of the study’s time period (Sufyanullah et al., 2022). The authors came to the conclusion that economic expansion should be carefully regulated in order to cut down on global CO₂ emissions and that this should be followed by the implementation of policies that are targeted at cutting down on carbon emissions.

Lastly, the environmental Kuznets curve (EKC) model can be used to investigate the link between economic growth and CO₂ emissions. According to this model, emissions rise with economic expansion until a certain point, after which they fall while the economy continues to grow (Hasan and Du, 2023). According to this concept, when countries expand, technical breakthroughs and improved economic policies are implemented, which aids in the reduction of emissions. This shows that, if handled properly, economic expansion might be essential in decreasing emissions (Qayyum et al., 2021). As a result, the EKC model demonstrates that economic development may be leveraged to cut emissions if the appropriate regulations are in place.

Findings

These three researchers all come to the same conclusion that economic development is the principal cause of CO₂ emissions. The importance of this finding lies in the fact that it places an emphasis on decoupling economic development from emissions in order to achieve global carbon reduction targets (Wei et al., 2021). In addition, the studies highlight the relevance of energy efficiency and the utilization of renewable energy sources in the process of reducing emissions. In conclusion, the findings demonstrate that governments’ economic and energy policies must be coordinated to guarantee that economic growth is consistent with reductions in carbon emissions.

The Relationship Between Urbanization and CO2 Emissions

Urbanization contributes significantly to climate change by increasing CO₂ emissions. Urban regions account for over 70% of worldwide energy-related carbon dioxide emissions and a sizable portion of global greenhouse gas emissions (Wang, 2022). The increased use of energy-intensive systems in urban areas, such as those for heating, cooling, and transportation, contributes to an increase in both the consumption of energy and the production of carbon dioxide as a result of a city’s growing population and size (Mehmood, 2020).

In addition, urbanization can lead to the clearance of forest land to make way for the expansion of cities, which results in the release of significant quantities of carbon dioxide into the atmosphere. Cities have a responsibility to reduce emissions to the greatest extent possible by putting more emphasis on energy efficiency, renewable energy, and green building design. Figure 4 below indicates the relationship between CO₂ and its environment.

Studies

Vector Error Correction (VECM) model can be used to evaluate the link between urbanization and CO₂ emissions in China. According to Khan et al. (2019), from the use of the model, they concluded that urbanization has a considerable impact on CO₂ emissions and that this impact is more substantial in the short term than in the long term. This conclusion was reached due to the researchers’ findings (Orhan et al., 2021). In addition, it was discovered that the effect of urbanization on CO₂ emissions was noticeably more prominent in the eastern and central parts of China compared to the western portion of the country.

Another research study intended to examine the relationship between urbanization and CO₂ emissions in Algeria was conducted. This research by Raggad (2018) used the ARDL model to examine the link between the two. The outcomes of their research indicate that urbanization has a positive and considerable short- and long-term influence on CO₂ emissions (Hashmi & Alam, 2019). This effect may be seen both immediately and in the long term. In addition to this, research has revealed that the beneficial effect that urbanization has on CO₂ emissions in the near term is significantly larger than the favorable effect that it has on CO₂ emissions in the long term.

Finally, Chen found the association between urbanization and CO₂ emissions in India and Pakistan using a Causal Model. The researchers discovered that, in both nations, urbanization had a favorable and considerable influence on CO₂ emissions, with the impacts being more prominent in India (Chen et al., 2022). They determined that the expansion of cities and the rise in urban settlements were the key causes of rising CO₂ emissions in both nations. This impact was shown to be considerably stronger in India due to its faster rates of urbanization and industrialization (Piłatowska et al., 2020). The study also found that urban growth, such as road construction, transit, and building, had a considerable impact on CO₂ emissions in both nations.

Findings

According to the findings of the study, urbanization has a considerable influence on CO₂ emissions, and this influence is significantly higher in the short term than it is in the long term. In addition, studies have shown that urbanization has a beneficial effect on CO₂ emissions both in the short term and in the long term (Lamb et al., 2021). The beneficial influence of urbanization on CO₂ emissions in the short term is significantly greater than the long-term advantage of urbanization on CO₂ emissions. Last but not least, the strongest correlation between urbanization and emissions may be found in cities with a high population density (McKenzie, 2021). This means that efforts to reduce CO₂ emissions worldwide should concentrate on improving urban planning and public transportation systems in places with a high population density.

The Relationship Between Financial Development and CO2 Emissions

The connection between economic development and CO₂ emissions is complicated. The relationship between financial products and enhanced economic growth has been established, which can lead to increased emissions (Aziz & Mighri, 2022). The accumulation of money may enable access to renewable energy sources such as solar, wind, and hydropower, which in turn can reduce emissions as seen in Figure 5. In addition, higher financial development can incentivize firms to invest in energy efficiency and pollution reduction technologies and enhance public awareness of environmental concerns (Mighri et al., 2022). Lastly, the way in which money is spent, and the rules that are in place to encourage environmentally beneficial investments are the factors that define the link between increased economic growth and increased CO₂ emissions.

Related Studies

Jian used a VECM in research on the long-run and short-run connections between financial development and CO₂ emissions in 18 countries. The results of the research demonstrated that there is a connection between Gross Domestic Product growth and CO₂ emissions; however, this connection is detrimental over the course of time (Jian et al., 2019). According to the results of the study, there is a potential that, over time, increased financial development will lead to a reduction in carbon dioxide emissions. This was suggested by the fact that there is a possibility.

Akalpler and Hove utilized an ARDL model to investigate the correlation between a country’s level of economic growth and the amount of carbon dioxide emissions in 28 different nations. The research results suggested that there is a positive correlation between economic growth and CO₂ emissions over a longer period of time (Akalpler and Hove, 2019). This research indicated that increasing economic growth may lead to larger CO₂ emissions over time.

Furthermore, Wang and Zhang investigated the link between financial development and CO₂ emissions in Vietnam using a linear regression model. According to the study’s findings, there is a positive relationship between financial development and CO₂ emissions, indicating that rising financial development might contribute to augmented CO₂ emissions (Wang, L. (2022). Additionally, the study discovered that the expansion of financial development in China accounts for more than half of the entire increase in CO₂ emissions. Our findings imply that financial development has a noticeable influence on CO₂ emissions and that steps should be taken to mitigate the environmental implications of financial growth.

Lastly, Xie examined the influence of financial development on CO₂ emissions in China using a panel vector autoregression (VAR) model. The study’s findings indicate a positive association between financial development and CO₂ emissions, suggesting that growing financial development might contribute to increased CO₂ emissions (Xie et al., 2019). The study also discovered that the short-term impact of financial development on CO₂ emissions is more serious than the long-term impact (Ali et al., 2020). This is most likely because short-term economic growth is frequently driven by the expansion of the financial sector, and the consequences of financial development can linger for a longer time.

Findings

The research outcomes demonstrate that financial development may have beneficial and harmful implications on CO₂ emissions. An increase in investment in industries that require a lot of energy might result in an increase in emissions in the short run (Mohsin et al., 2022). Over a more extended period, emissions can be reduced by increased investment in energy-saving technology and renewable forms of energy (Kim & Kim, 2022). In addition, investments in renewable energy sources and technology that are efficient with energy can mitigate the harmful effects of making more substantial investments in energy-heavy enterprises.

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