Environmental Changes and Economic Growth Relationship

CHAPTER 1

INTRODUCTION

1.0 Background of the Study

Over the past two decades, the issue of climate change due to increased global warming has been a major environmental challenge. Rising levels of carbon dioxide emissions is considered one of the principal causes of global warming and climatic instability. In order to investigate the climate change concern, this research examines the cointegration and causal relationship between economic growths and carbon dioxide (CO2) emissions in selected five Association of Southeast Asian Nations (ASEAN) countries for the period 1980 to 2010 namely Indonesia, Malaysia, Philippines, Singapore and Thailand. The research focus on the relationship of these two variables, from the increasing effects of energy on economic development.

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This research aims to discover the linkage of these two variables as emissions and economic growth are related in contributing the global warming or climate change. This issues has been discussed frequently and become a bigger concern globally. The Research specifically focus on ASEAN five, and not to all ASEAN countries as these five countries sharing the similarity in the level of economics development since 1980 that coincided with significant increase in fossil fuel usage. The pressure exists for ASEAN five to achieve a balanced level of energy that control the CO2 emissions to the environment but at the same time ensuring the country’s sustainable economic growth. Thus, the issue regarding how increased fossil fuel consumption and economic growth influence carbon dioxide emissions is currently one of the most interesting topic.

Over the past two decades, the menace of climate change due to increased global warming has been a major environmental challenge. Rising levels of carbon dioxide emissions is considered one of the principal causes of global warming and climatic instability

Association of Southeast Asian Nations (ASEAN) includes almost all of the Southeast Asian countries. Its key position in the Asian Pacific proclaims dedication toward peace and stability in the region, these Region contributed a significant economic input through integrated energy management. ASEAN was first officially established in 1967 in Bangkok, Thailand, with the signing of the Bangkok Declaration by the five original member nations: Indonesia, Malaysia, Philippines, Singapore, and Thailand. Further on Brunei Darussalam, Vietnam, Lao People’s Republic, Burma/Myanmar, and Cambodia joined, making the ASEAN a group of 10.

ASEAN region lies within the waters of the Pacific Ocean, Indian Ocean, Andaman Sea and South China Sea, and stretches more than 3,300 kilometres from north to south (latitudes 30° North to 11° South) and 5,600 kilometres from west to east (longitudes 92° West to 142° East). ASEAN borders from China to the north, India and Bangladesh to the northwest, and East Timor and Papua New Guinea to the southeast. ASEAN also has a long coastline, measuring about 173,000 kilometres in total, and is surrounded by major seas and gulfs such as the South China Sea, the Andaman Sea and the Gulf of Thailand. In view of its proximity to the equator, the region enjoys a warm and humid climate throughout the year according to Letchumanan (2008).

In ASEAN from the period from 1980 to 1999, its economy grew by nearly 5 percent a year and energy consumption by 7.5 percent. The economy is expected to continue to grow at this rate over the period from 2000 to 2020, and it is estimated that annual energy supply must increase by 4.2 percent a year to sustain this growth, Balce et al. (2001).

As Karki, Mann, & Salehfar (2005) the Association of Southeast Asian Nations (ASEAN) is one of the most dynamic economic regions of the world. The economy in ASEAN is linked with its diverse energy resources, high-level urbanization, and rapid industrialization. ASEAN’s growing economy in the last two decades has increased the concern of sustainable development in the face of deteriorating energy security, environmental pollution, and economic hardship in energy investment.

In the last two decades ASEAN’s faces a growing economy and it has increased the concern of sustainable development in the issues of deteriorating energy security, environmental pollution, and economic hardship in energy investment Karki et al. (2005).

ASEAN-5, namely Malaysia, Indonesia, Singapore, Philippines and Thailand have progressed economically well compared to other members of ASEAN. Among the ASEAN countries (excluding Brunei), in terms of per capita income in 2008, Singapore (USD 39,991) ranked the highest followed by Malaysia (USD 8032), Thailand (USD 4103), Indonesia (USD 2245) and the Philippines (USD 1840). The average GDP growth of ASEAN-5 between 2004 and 2009 was 5.9% with Singapore and Indonesia recording over 5% growth rates. The rapid growth of the ASEAN-5, specifically for Singapore and Malaysia compared to the rest, poses an interesting question among policymakers. Thus, it is essential to investigate the long-run and short–run relationship and causality issues between the variables for these countries.

Furthermore, according to ACE (2002) The ASEAN makes up one of the largest regional markets in the world, and contributing a combined gross domestic product (GDP) of US$578 billion in 2000.The region hosts approximately US$53 billion in direct US investment, and it is the third largest overseas market for US exports with two-way ASEAN–US trade totalling US$120 billion in 2001.The rapid economic growth for ASEAN can be seen since Hence, the environmental, social, and economic issues in the region are very significant and widespread for the rest of the world.

1.1 History of C02 Emissions in ASEAN

ASEAN comprises of ten countries. These countries have contrasting energy demand profiles, levels of access to modern energy services, and energy resource endowments. The demand for energy in the region has continuously increased over the past four decades, driven essentially by high economic growth, underpinned by increased urbanisation and industrialisation. The development has resulted in increased greenhouse-gas emissions. A large proportion (approximately 60%) of these emissions have come from fossil-fuel combustion taken from WRI (2011).

According to Sandu, Sharma, & Vaiyavuth (2009) the historical development in CO2 emissions for the ASEAN countries over the period 1971 to 2009, show that: (1) population growth and increased levels of affluence are the largest contributors to emissions growth in most countries; (2) fossil fuels have increasingly become the major fuel source in the region despite recent global environmental pressures – reversing this trend will be a challenging task; (3) production structures for most countries have increasingly become concentrated towards energy-intensive industrial sector; (4) the region has achieved energy efficiency gains at both end-use and conversion levels – in fact this is the only factor that led to reduced emissions; and (5) the effect of changes in carbon intensity of primary energy was only negligible and no meaningful trend can be observed. As fossil fuel as a major CO2 contribution in the air, it is relevant to reinvestigate whether the CO2 emission have a causality effect to GDP and how these two variable react .My research will answer the direction interplay between CO2 and GDP.

Notwithstanding the large growth in energy consumption, energy consumption per capita in the region (0.9 tonnes of oil equivalent), however it still considerably lower than the developed world average. Moreover, almost 30% of the population in the region still do not have access to electricity IEA (2009). With expected increases in population (by 30% by 2050; UN 2011), coupled with ever increasing urbanisation and industrialisation, energy demand is expected to increase substantially. Unless there are fundamental changes in the patterns of economic production and fuel-mix, the greenhouse-gas emissions are expected to became higher and grow significantly in the years to come. For example, according to IEA (2009), the region’s share of global emissions could reach 5% in 2030. Currently this share is around 3%.

The implication of CO2 emissions comes in positive and negative manners respectively. One important detail to be considered is that the effect of this occurrence varies from one country to another depending on the level of social, economic as well as political developments. As such, it is important to analyse the history of CO2 emissions, according to specific country rather than assuming the impact as an overall. This section will discuss further the history of CO2 through the perspective of ASEAN countries. This current research focus on CO2 emission only because this emission is the most listed in the IPCC (revised in 1996) and most effect to climate changes according to world-nuclear (2014).Latest updates are 72% of the totally emitted greenhouse gases is carbon dioxide (CO2), 18% Methane and 9% Nitrous oxide (NOx). CO2 is inevitably created by burning fuels like e.g. oil, natural gas, diesel, organic-diesel, petrol, organic-petrol, ethanol. The emissions of CO2 have been gradually increased within the last 50 years and are still increasing by almost 3% each year.

According to Luukkanen & Kaivo-oja (2002) the general observation on the basis of decomposition analyses provided that development of energy sectors in ASEAN countries is to an increasing extent based on fossil energy use. Decomposition analyses is quantifying the contribution of each group of energy use to the aggregate index.This type of development is mainly due to the fact that the ASEAN countries are industrializing economies and are following the Western pattern of development. This summarize that each countries responsibilities and participate of the developing countries in emission reductions is central and for ASEAN countries economic constraints can deplete the environmental concerns.

1.1.1 History of CO2 in Malaysia

Malaysia experienced a rapid economic growth from the past four decades. From the year of 1961 to 1997 (before financial crisis) Malaysia economic growth increased by an annual average growth rate of 7.26%.and from the year of 1999 to 2008 (before Asian financial crisis), Malaysia experienced 5.55% increase in its annual average growth rate. Malaysia are categorise as a high income developing country in South East Asia. From the statistics energy consumption in Malaysia increased by average annual growth rate of 6.76% in 2010 to settle at 72646 kilo tone of oil equivalent (ktoe) from 6093 ktoe in 1971 (World Bank, World Development Indicator).

Chik, Rahim, & Studies (2012) conclude that CO2 emission intensity in the energy sector, Electricity has contributed the highest CO2 emission, while in non-energy sector; Transportation has contributed the highest CO2 emission in 2005. Malaysia’s initiative to combat the environmental issue based on energy use is by limiting and minimize the new energy intensive sector but will promote the energy efficiency and high production industries.

According to Saboori, Sulaiman, & Mohd (2012) Malaysia has experienced rapid transformation from an agriculture based economy to industrialization, and a significant rise in pollutant emissions, specifically CO2 emissions. In 2007 CO2 emissions in Malaysia were at 7.32 metric tons per capita while the world average was only 4.63 tons. It is proven that real GDP per capita and per capita CO2 emissions move closely together over time, implying a long-run or cointegrating relationship between them, as such econometric testing has been applied in my research to evidence the existence of the relationship. Thus it is justifiable to investigate the cointegration and causality issues between these two variables.

1.1.2 History of CO2 emissions in the Philippines

CO2 emissions started in Philippines is a archipelago located in Southeast Asia and as a country that is full of islands and a sensitive ecosystem, Philippines also no stranger to the effects of global warming. Slightly changes in the environment can give big environmental disasters in Philippines.

In 1994, 10,603 ktons of CO2 were released Industry sector. A major fraction (86%) of the industrial CO2 emissions comes from the cement and metal industries .Those emissions comes directly from industrial processed associated with manufacturing cement and metals, and excluded the power generation activities of these industries which are already accounted for in the Energy sector. This is related to the combined effect of GHG emissions came from the four sectors of Energy, Industry, Agriculture, and Wastes, and the net uptake (sink) of from the greenhouse gas emissions. Globally, this national amount is still minimal relative to the CO2 emissions from other developed countries parties to the UNFCCC. The greenhouse gas emissions in the energy sector which is largely from CO2 come mainly from fuel combustion. From this sector alone emitted 50,038 kt tons of equivalent CO2 in 1994 by Bureau & Resources (2004).

Fabian (2009) reported that local air pollution problems and the impacts of climate change as well will continue to plague the Philippines unless a new program for land-use and transportation planning is implemented. In Philippines transportation sector plays a main role in economic development and cities are often cited as the “engines” of growth of a country. Recent estimates of CO2 and particulate (PM) emissions in the Philippines show that in 2008, emissions of CO2 totalled 30 million tons and 56 thousand tons of particulate matter. CO2emissions from the transport sector accounted for 38 per cent of the total from fuel combustion in 2000. If the business-as-usual scenario prevails, the number of motorized vehicles will become double before the year 2020.

Indoor air pollution in ASEAN member countries caused by incomplete burning of biomass and coal while the people cook in traditional cook stoves. As much as 90% of the biomass is consumed in the household sector in Philippines as Bhattacharya, (2000). A study done by Bhattacharya (2000) shows that 29.1Mt of CO2 was emitted from biomass combustion, whereas 50.2Mt was emitted from fossil fuel combustion in the Philippines in 1995. The increasing high emissions from the cook stoves are due to low efficiency and high emission factors. The average efficiency of the most widely available cook stoves is about 16 percent, using charcoal as fuel. A typical cook stove used in Thailand has an efficiency around 14 percent and emission factors (g/kg of fuel used) of 26.4 CO, 1596 CO2, 10CH4, and 0.120 Nox Bhattacharya et al. (2002). The emissions are not only is the heat from the burning wasted, but because of poorly designed chimneys, the indoor air pollution is more severe

1.1.3 History of CO2 emissions in Singapor

Kluver and Weber (2003) stated that Singapore, is an island country has existed since 1965, when it was separated from the newly formed Republic of Malaysia, as a result of a fear by Malays of Singapore’s dominant Chinese ethnic group as well as a strategy in order to keep communism at arm’s length. Singapore done very well in the past decades of the twentieth century to rise from an enter port centre to be a global city and finally become a developed nation country. It had resolved most of the issues relating to underdevelopment and had developed the needed institutions to prepare its survival in the twenty-first century.

Tan, Lean, & Khan (2014) indicate a significant rise in CO2 emissions as GDP rose. Another study on a possible turning point shows that continuous growth will be necessary for a long time before we experience any trickle-down effects on environmental pollution. The results of causality analysis conclude that CO2 emissions indeed have caused decline in Singapore’s growth. It is therefore argued that strict regulatory regimes on environmental protection in the city–state must remain in force.

Tan, Lean, & Khan (2014) indicate a significant rise in CO2 emissions as GDP rose over the years confirming a short-run trade-off between environment and growth.

Furthermore according to Sam (2010) with the absence of any significant agricultural land or landfill sites, Singapore has no problems with methane gases. CO2 is the primary greenhouse gas emitted in the city state is produced by the use of fossil fuels in power generation. Singapore’s CO2 is produced by industry (54%), transportation (19%), buildings (16%) and consumer households (9%).CO2 emissions in Singapore rose from an average 5.26 million tonnes per capita between 1970s to 1980s to 10.29 million tonnes per capita in the mid-1990s, and stabilizing at an average of 10.19 million tonnes per capita for the period of 1995 to 2008.

Comparing with total global emissions, CO2 emissions in Singapore accounted for less than 0.2% although Singapore’s contribution has increased from an average of 0.07% in the 1970s and 1980s to 0.17% in 1991 to 2008. For instance Singapore has been considered a high emitter of greenhouse gases. The Energy Information Administration (EIA), which provides energy statistics to the United States government, indicated in its 2006 data that Singapore emitted 141 million tonnes of CO2.

The EIA ranked Singapore as the 33rd highest emitter of greenhouse gases among 215 countries.

Bradshaw, Giam (2010) indicate that from the recent study ranks Singapore as the worst environmental offender among 179 countries in terms of proportional environmental impact. Singapore’s poor ranking is attributed to its drive for economic development and urbanization that has led to high proportional natural forest loss and greater release of CO2.