Balancing Economic Growth and Environmental Sustainability through Energy Consumption in Pakistan

Abstract

This study examine the among economic growth, environmental sustainability and energy consumption. In the short run, the consumption of nonrenewable energy, such as fossil fuels, contributes significantly to the rise in real GDP. However, this comes at an environmental cost. Forecast error variance decomposition indicates that nonrenewable energy consumption alone significant variation in carbon emissions. This high percentage underscores the substantial role fossil fuels play in environmental degradation in Pakistan. The resulting carbon emissions negatively impact economic activity, leading to a decline in real GDP.  In response to the detrimental effects of high carbon emissions, there has been a noticeable increase in renewable energy consumption. This shift is indicative of the stabilizing efforts initiated by government authorities as carbon emissions reach critical levels. The growth in renewable energy consumption not only helps mitigate environmental damage but also boosts economic activity, leading to an increase in real GDP. Often, the rise in renewable energy consumption is driven by the need to substitute nonrenewable energy sources, which in turn results in lower carbon emissions. This substitution effect is crucial for sustainable development, as it helps balance economic growth with environmental preservation. Nonrenewable energy consumption initially boosts real GDP in Pakistan, it also significantly contributes to carbon emissions and environmental degradation. The subsequent increase in renewable energy consumption, driven by policy efforts to stabilize carbon levels, helps restore economic activity and promotes sustainable growth. This dynamic underscores the importance of transitioning to renewable energy sources to ensure long-term economic and environmental stability.