Oil price, energy consumption and carbon dioxide (CO2) emissions: insight into sustainability challenges in Venezuela

Abstract

This study provides insight into sustainability challenges in Venezuela by exploring the causal interactions between oil price, energy consumption and carbon dioxide (CO2) emissions in Venezuela. Economic growth, government consumption expenditure and trade openness are included as additional determinants in the analysis. The autoregressive distributed lag (ARDL) bounds approach to cointegration provides evidence of long-run relationship between the variables with the incorporation of structural breaks observed in the series. The estimates suggest that an increase in crude oil price significantly increases energy consumption, government consumption expenditure and energy consumption generate CO2 emissions, and CO2 emissions exert negative effects on economic growth in the oil-rich economy. This study further examined the direction of causality between the variables using the innovative accounting approach (IAA). The results suggest that crude oil price causes energy consumption in the economy. No significant causal relationship is found between energy consumption and economic growth. Energy consumption causes CO2 emissions in the economy. In addition, a unidirectional causality runs from CO2 emissions to economic growth. The response of economic growth to CO2 emissions indicates that more CO2 emissions in the economy would exert negative effects on economic growth. It is, therefore, expected that policy makers would consider energy diversification as a major component of economic diversification policies in Venezuela.