Breaking the unsustainable paradigm: exploring the relationship between energy consumption, economic development and carbon dioxide emissions in Ecuador

Abstract

Energy consumption is a crucial driver for economic development, improving the quality of life of the population of a country. This study attempts to contribute to the discussion by employing a systemic approach and methodology to examine the relationship between energy consumption (EC), gross domestic product (GDP) and carbon dioxide emissions (CO2) in Ecuador using time series from 1990 to 2018 with a mixed methodology (quantitative and qualitative). The energy balance and the enlarged Kaya identity are utilised to quantify the environmental impact of human activities. Furthermore, correlational cointegration and Granger causality tests are used to analyse the long-term and short-term relationships between variables in different sectors. The results reveal that there is no Granger causality between the variables in the agriculture and transport sectors, but there are unidirectional causality relationships in the industry and services sectors. In the industry sector, the study finds that EC Granger causes GDP (Wald test p value = 0.0038) and CO2 Granger causes GDP (Wald test p value = 0.0433). In the services sector, GDP Granger causes CO2 (Wald test p value = 0.0075), and EC Granger causes CO2 (Wald test p value = 0.0122), reinforcing the loop between GDP and CO2 in both sectors. The analysed relationships help to inform policymakers about the likely impact of interventions. In addition, the study shows that Ecuador is in the initial phase of the Environmental Kuznets Curve, and provides strategies to manage sectoral energy consumption and valuable insights for other developing countries in Latin America seeking to pursue sustainable development.