Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia

1. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 1 Long and short-run linkages between economic growth, energy consumption and CO2 emissionsin Tunisia Houssem Eddine CHEBBI, Ph D Faculty of Economic Sciences and Management of Nabeul (FSEGN) - Tunisia

2. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 2 Structure of presentation Introduction Tunisian Economic & Energy Situations Motivations Main Objective Data & stationarity Part I: Long-run relationships study (a cointegration analysis) Part II: Short-run dynamics (generalized impulse response functions) Part III: Granger - causality study Summary & policy implications

3. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 3 The relationship between economic & growth energy consumption, as well as economic growth & environmental pollution, has been one of the most widely investigated questions in the environment economic literature: whether energy consumption ? stimulates, ? retards or ? is neutral to economic growth has motivated interest among economists and policy analysts� � empirical finding studies are not conclusive to present policy recommendation that can be applied across countries� Few studies focus to test the nexus of output-energy and output-environmental degradation under the same -integrated framework. Introduction :

4. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 4 Tunisia is amongst the MENA countries with a strong growth potential with annual growth of GDP exceeding 5% (since 1995) The consumption of primary energy in Tunisia (8.5 Mtoe) is covered by : crude oil and petroleum products (50%) natural gas (38%) biomass (12 %): essentially used in rural areas The energy use composition by sectors (has not changed since 2000): household sector (29%), transportation (25%), industry sector (16%), agriculture (4%) Tunisia is a hydrocarbon importer (absence of a significant discovery) and has initiated a plan to reduce the oil-deficiency. Introduction :Tunisian Economic & Energy Situations (2005)

5. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 5 The empirical relationships between economic growth, energy consumption and environmental degradation were largely under considered and unanswered in Tunisia� Environmental Awareness and policy makers in Tunisia? Tunisia appears to be an interesting case study: one of the highest growth economies in the MENA region; energy supply is insufficient to meet the increasing demand. Introduction :Motivations

6. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 6 Main Objective The aim of this research is to quantify long and short-run linkages between economic growth, energy consumption and environmental degradation.

7. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 7 Data & stationarity properties (1) PGDP : Real Gross Domestic Product (per capita) PENE : Energy Use (per capita) PCO2 : Carbon Dioxide Emissions (per capita) as proxy for the level of pollution and environmental degradation in Tunisia Annual data : 1971 � 2004 The World Development Indicators (World Bank, 2008). All variables are indexed (basis 100=1986) and transformed in logarithms.

8. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 8 The first stage : to investigate the stationarity properties and establishing the order of integration of series (PGDP, PCO2 and PENE). The combined results of both unit root tests ADF (Dickey and Fuller, 1979 and 1981) and KPSS (Kwiatkowski et al., 1992) suggest that all series are non-stationary and integrated of order one, I(1). Data & stationarity properties (2)

9. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 9 Part I: Long-run Relationships Study: A Cointegration Analysis

10. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 10 Long-run relationships study: a cointegration analysis (2) The next step is to investigate whether the series are cointegrated using the Johansen� procedure:

11. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 11 Long-run relationships study: a cointegration analysis (3) Results of Johansen�s likelihood ratio tests for cointegration rank

12. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 12 first vector: (positive linkage between PGDP & PENE): 1% increase in PENE will raise economic growth by 1.124%. Long-run relationships study: a cointegration analysis (4)

13. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 13 first vector: (positive linkage between PGDP & PENE): 1% increase in PENE will raise economic growth by 1.124%. second vector: (positive linkage between PCO2 & PENE): 1% increase in PENE will raise PCO2 by 1.352%. Some evidence of �inefficient use� of energy since environmental pressure tends to rise faster than economic growth in the long-run. Long-run relationships study: a cointegration analysis (4)

14. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 14 Long-run relationships study: a cointegration analysis (5) The speed of adjustment of each variable towards the long-run equilibrium: first vector: the ? parameters related with PGDP (?11) and with PCO2 (?21) are not significant: ? any shock in the long-run relationship between GDP and ENE generates only a significant adjustment of energy consumption.

15. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 15 Long-run relationships study: a cointegration analysis (5) The speed of adjustment of each variable towards the long-run equilibrium: first vector: the ? parameters related with PGDP (?11) and with PCO2 (?21) are not significant: ? any shock in the long-run relationship between GDP and ENE generates only a significant adjustment of energy consumption. second vector: the ? parameters indicate that PENE react quicker than PGDP and PCO2 (?32>?12>?22): ? energy policy seems to be more oriented to supporting economic growth than to encouraging the reduction of carbon emission.

16. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 16 Part II: Generalized Impulse Response Functions: Short-run Dynamics Now, let me present you the short-run dynamics and the calculation of the impulse response functions.Now, let me present you the short-run dynamics and the calculation of the impulse response functions.

17. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 17 Generalized Impulse Response Functions (GIRF) (2) Short-run dynamics can be examined by considering the Generalized Impulse Response Functions (GIRF). These functions show the response of each variable in the system to a shock in any of the other variables.

18. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 18 Generalized Impulse Response Functions (shock in PGDP) Responses of PENE appear to be slightly larger than those of PCO2 and the significant output growth appears to have some permanent pressure on energy use and CO2 emissions ? economic growth takes precedence over energy consumption in the short-run. Response of PCO2 is only significant 5 horizons after the initial shock ? higher growth may lead to pollution as consequence of emissions occurring during the production process.

19. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 19 Part III: Granger-causality Study

20. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 20 Granger-causality Study (2)

21. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 21 Granger-causality Study (3) The results show strong evidence of PGDP causing PENE and do not support the view of neutrality. The economic growth exerts a positive causal influence on energy consumption growth. Support for reverse causality is also found in the long-run. ? Tunisia is an energy dependent economy. The Tunisian economy may be vulnerable to energy shocks in which an energy shortage may adversely affect GDP growth.

22. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 22 Granger-causality Study (4) Statistical results provide support for causality running from PCO2 to PGDP (both in the short-run and the long-run). The results provide some support of mutual causal (feedback relationship) in the long-run. This pattern of development is consistent with the experiences of many developing countries (higher pollution levels).

23. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 23 Summary & Policy Implications (1) The aim of this country specific study is to understand long and short-run linkages between economic growth, energy consumption and carbon emission. This research attempts to present some findings to call on the necessity of integrating the environment and development in the policies and practices.

24. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 24 Summary & Policy Implications (2) Results of the long-run relationships provide some evidence of �inefficient use� of energy, since environmental degradation tends to rise more rapidly than economic growth in Tunisia.

25. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 25 Summary & Policy Implications (3) Results provide support for: causality running from pollution emissions growth to output growth (both in the short-run and the long-run). mutual causal and feedback relationship in the long-run. From a policy perspective: This pattern of development ? high levels of pollution � Decline in environmental quality may exert negative externalities to the economy through depressing the tourism sector and also affecting human health (and thereby reduce productivity and growth in the future).

26. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 26 Summary & Policy Implications (4) Results confirm that an increase in pollution level induces economic expansion : ? In order not to adversely affect economic growth, more efforts must be made to encourage industry to adopt technology that minimizes pollution. as a serious environmental policy, although Tunisia has no commitment to reduce GHG emissions. The potential exists for the development of renewable energies (renewable energies represent less than 1% of the primary energy use in Tunisia) � and further efforts would require additional financing by policy makers.

27. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 27 Summary & Policy Implications (5) The combined results of causality analysis and IRF indicate that Tunisia is an energy dependent economy: ? The Tunisian economy may be vulnerable to energy shocks in which an energy shortage may adversely affect output growth. For this reason, it seems possible that energy conservation policies could be achieved through the rationalization of household demand & transportation sector consumption. �.Further empirical analysis, including other variables (investment, trade,� ) could be conducted in the future�

28. Long and short-run linkages between economic growth, energy consumption and CO2 emissions in Tunisia 28 Long and short-run linkages between economic growth, energy consumption and CO2 emissions in TunisiaHoussem Eddine CHEBBI, Ph DFaculty of Economic Sciences and Management of Nabeul (FSEGN) - Tunisia I thank you for your kind attention�