The energy-growth nexus in 3 Latin American Countries within the framework of the EKC: in case of Argentina, Brazil, and Chile

Abstract In this paper, we examine the effects of economic growth and different types of energy consumption on environmental quality in terms of carbon dioxide emissions (CO2) within the framework of the Environmental Kuznets Curve (EKC) for three Latin American countries, namely Argentina, Brazil, and Chile from 1975 to 2018. Specifically, we considered four different types of energy sources (oil, natural gas, hydroelectricity, and renewable energy) in addition to agricultural lands and trade openness as our control variables. We examined appearance of the cointegration relationship among the variables by the cointegration bounds test, then we verified the validity of the EKC hypothesis and the impacts of the variables in the short and the long run with the Autoregressive Distributed lag (ARDL) in the form of Error Correction Mechanism (ECM). Lastly, after ARDL-ECM estimation, we carried out the Toda-Yamamoto Granger causality test to identify the direction of causality between the variables after ARDL-ECM estimation. We confirm that there is a cointegration relationship between CO2 emissions and our explanatory variables we selected, where the F-statistics of cointegration bounds test were above the upper bound critical value at 1% significance level. In ARDL-ECM estimation, we could verify the EKC hypothesis (inverted U-shaped curve between income growth and CO2 emissions) only in Argentina in the long run, but the opposite patterns (U-shaped curves) in Brazil and Chile as well. Moreover, we also found the evidence of a long-run equilibrium relationship among the variables in ARDL-ECM estimation since the Error Correction Term had a negative sign and statistically significant at 1% level in all three models for each country we analyzed, which substantiates the results of the previous cointegration bounds test. Furthermore, we could observe that fossil fuel energy, especially oil consumption, had a strong negative impact on environmental quality as it leads to increasing CO2 emissions both in the short and the long term in all three countries. As for natural gas, we found that it contributes to increasing CO2 emissions but to a significantly lesser extent than oil both in the short and the long term in Argentina, Brazil, and Chile. In relation to hydroelectricity, it had a significant negative impact on CO2 emissions only in both Brazil and Chile. Finally, renewable energy consumption had a statistically significant negative impact on CO2 emissions only in Chile while in Brazil, it had a positive impact in the long run. In the Toda-Yamamoto Granger Causality test, it tells us that oil consumption can be drastically reduced and replaced by other clean energy sources with significantly less emissions of CO2 along with their economic growth in Argentina, Brazil, and Chile since the conservation hypothesis tells us that the reduction in oil consumption does not hinder economic growth in these countries. Furthermore, energy consumption by natural gas, hydropower, and renewables leads to economic growth in Argentina and Chile, confirming the growth hypothesis (these 3 types of energy all granger caused economic growth in Chile while only hydropower did in case of Argentina). So, promoting their consumption might help to boost economic growth along with achieving environmental protection goal in Argentina and Chile. The findings of our study tell us that renewable energy might have a great potential in reducing CO2 emissions in the future, but this advantage has not been fully exploited yet since we found only a significant negative impact on CO2 emissions in Chile. Our findings also suggest that other less carbon-intensive energy sources such as natural gas and hydropower combined with renewable energy might produce synergetic effects and they can significantly contribute to not only enhancing energy security (by diversifying energy mix and reducing the risk of intermittency of renewable energy) but also achieving successful transition to low-carbon energy system in Argentina, Brazil, and Chile.