Does energy consumption contribute to environmental pollutants? Evidence from SAARC countries.

The objective of the study is to examine the causal relationship between energy consumption and environmental pollutants in selected South Asian Association for Regional Cooperation (SAARC) countries, namely, Bangladesh, India, Nepal, Pakistan, and Srilanka, over the period of 1975-2011. The results indicate that energy consumption acts as an important driver to increase environmental pollutants in SAARC countries. Granger causality runs from energy consumption to environmental pollutants, but not vice versa, except carbon dioxide (CO2) emissions in Nepal where there exists a bidirectional causality between CO2 and energy consumption. Methane emissions in Bangladesh, Pakistan, and Srilanka and extreme temperature in India and Srilanka do not Granger cause energy consumption via both routes, which holds neutrality hypothesis. Variance decomposition analysis shows that among all the environmental indicators, CO2 in Bangladesh and Nepal exerts the largest contribution to changes in electric power consumption. Average precipitation in India, methane emissions in Pakistan, and extreme temperature in Srilanka exert the largest contribution.