This study aims to portray the growth–energy–environment relationship in Luxembourg by performing a yearly data covering the years from 1970 to 2021.
Economic growth, population growth and disaggregated energy use into renewable and non-renewable sources are employed to investigate the impact of each on environmental quality as measured by CO2 emissions. ARDL Bounds co-integration test was established to explore the long run relationship among the variables and the ARDL approach was employed to estimate the long run impact of the determinants on CO2 emissions. The results validated the presence of the EKC in Luxembourg. Moreover, the causal link between variables is investigated employing a novel approach to time-varying causality which was recently developed by Shi et al. (2018, 2020) highlighting the main contribution of this study.
Overall results of the study lead to conclude that economic growth and sustainable environmental quality can both coexist if feasible anti-pollution laws are enacted, fossil fuels are reduced and further research is made to increase the capacity of renewable energy sources and raise their percentage contribution to energy supply. The time-varying causality test results verify that causal link between environmental degradation and its main determinants is apparent over different time spans. Thus, time-varying causality test results suggest to design dynamic policies to improve environmental quality in Luxembourg.
This study contributes to the literature since the use of the variables is the first of its kind for a time-series empirical analysis on Luxembourg as the study seeks to investigate the growth–energy–environment relationship in the country. Furthermore, to the best of the author’s knowledge, there is no previous study investigating the time-varying causality link between environmental degradation and its main determinants by the application of the test developed by Shi et al. (2018, 2020) considering the indicators focused in this study and for the case of Luxembourg.
