The Dynamics of Energy Consumption, CO₂ Emissions and Economic Growth: Evidence from Ghana

Abstract

The relationship among energy consumption, carbon dioxide (CO₂) emissions, and economic growth has been the subject of extensive global debate, particularly in the context of sustainable development. This study investigates the dynamic interactions among these variables in Ghana using annual time-series data from 2000 to 2022. The analysis is guided by the endogenous growth theory and the Environmental Kuznets Curve (EKC) hypothesis, and employs econometric techniques including unit root tests, cointegration analysis, an error correction model (ECM), Granger causality tests, and impulse response functions (IRFs). Diagnostic tests ensured the robustness and reliability of the model. The unit root tests confirm that energy consumption, CO₂ emissions, and GDP per capita are integrated of order one, I (1). Johansen cointegration results confirm the existence of a long-run equilibrium relationship among the variables. The VECM estimates reveal that electricity consumption significantly drives economic growth in both the short run and long run, supporting the growth hypothesis. A joint short-run causality from energy consumption to GDP as well as from CO2 emission to GDP were established. There was evidence of unidirectional causality from both energy and CO₂ to GDP. The findings imply that while energy consumption is critical to sustaining Ghana’s economic growth, it also contributes significantly to environmental degradation. Policy measures should therefore focus on expanding renewable energy, enhancing energy efficiency, and aligning climate policies with national development strategies. By balancing growth objectives with environmental sustainability, Ghana can advance toward a low-carbon development pathway