The Environmental Study on Causality Relationship among Energy Consumption, CO2 Emissions, the Value Added of Development Sectors and Household Final Consumption Expenditure in Indonesia

The long-run estimates indicate that there is a statistically significant positive association between electricity consumption and emissions and a non-linear relationship between emissions and real output, consistent with the Environmental Kuznets Curve. The present study investigate the causal relationship between CO2 emissions, energy consumption, the value added of three development sectors and household final consumption expenditure in Indonesia using annual time series data from 1971 to 2014. We applied Autoregressive Distributed Lag (ARDL) method and granger causality test in order to explore the direction of relationships among the variables. Our study revealed that the growth of energy consumption and an increases the value added of industry sector and services sector will causes a rise of CO2 emissions, while a rise of the value added of agriculture sector potentially reduced CO2 emission and increases energy consumption. The growth of value added on three development sectors, respectively, have a mutual relationship with household final consumption expenditure and a unidirectional relationship to energy consumption and CO2 emission in Indonesia. Furthermore, we also discovered that the value added of services sector has a mutual relationship with the value added of industry sector and agriculture sector, while the growth of value added on industry sector has a negative effect to the value added of agriculture sector. Based on these results, we concluded that the energy conservation policies can be applied to all energy user groups in Indonesia. In addition we also suggest that policy makers can implement economic policies that can encourage increased the value added of agriculture sector in Indonesia.