Does Clean Energy Reduce Environmental Pollution under the Environmental Kuznets Curve Hypothesis in Sri Lanka?

This study explores the nexus among clean energy, economic growth, urbanization, trade openness, and carbon dioxide (CO2) emissions nexus in an emerging economy, Sri Lanka. An autoregressive distributed lag (ARDL) econometric technique and different diagnostic tests are used to investigate the linkages. The pairwise Graner causality approach is applied to investigate the causality direction. The estimated results have confirmed that clean energy and urbanization reduce carbon emissions, whereas trade openness induces carbon emissions in the long run in Sri Lanka. The findings revealed the non-existence of the environmental Kuznets curve (EKC) hypothesis in Sri Lanka. In contrast, the pollution haven hypothesis (PHH) exists between trade openness and carbon dioxide emissions in Sri Lanka. Regarding causal relationships, there is bi-directional causality between clean energy and urbanization. This study reports a unidirectional causality from clean energy to CO2 emissions, economic development to carbon emissions, urbanization and trade and CO2 emissions to urbanization and trade. Based on the above findings, this study recommends some policy recommendations.

Automated summary

This study examines the relationship among clean energy, economic growth, urbanization, trade openness, and carbon dioxide (CO2) emissions in Sri Lanka, an emerging economy. The study uses an autoregressive distributed lag (ARDL) econometric technique and various diagnostic tests to investigate these linkages. The results show that clean energy and urbanization reduce carbon emissions, while trade openness increases carbon emissions in the long term in Sri Lanka. The study also finds evidence of the pollution haven hypothesis (PHH) between trade openness and carbon dioxide emissions. Furthermore, there are bi-directional causal relationships between clean energy and urbanization.