Abstract/Summary

The paper investigates the causality relationships among energy consumption, carbon dioxide (CO2) emissions and income in India using a dynamic modeling approach. The paper also utilises an innovation accounting method to investigate profiles of the macroeconomic variables persisting from an unanticipated shock in innovation. Our results provide evidence of the existence of bi-directional Granger causality between energy consumption and CO2 emissions in the long-run but neither CO2 emissions nor energy consumption causes movements in real income. There is no causality relationship between energy consumption and income in any direction in the long-run implying that India could follow energy conservation and efficiency improvement policies without impeding economic growth. This will allow India to reduce CO2 emissions without affecting its economic growth and contribute significantly towards combating global warming as well.