Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 The Effect of Gasoline Consumption, Urbanization and Economic Growth on CO2 Emissions in MENA Countries Ahmad Assadzadeh1, Parviz Mohammadzadeh2, Akram Akbari3 and Javad Pourqoly4 Growth in urban populations causes extension of economic activity and increases energy consumption that lead to increases in the types of greenhouse gas emissions (especially CO 2). Thus, Carbon dioxide emissions may create significant social harm because of global warming and risks of climate change. This paper investigates the impact of economic growth, energy consumption, urbanization on carbon dioxide (CO2) emissions from transport by using the General Method of Moments in 18 Middle East and North African Countries (MENA) from 1980 to 2012.The result shows that Gasoline consumption, GDP and Urbanization have significant positive impact on CO2 emissions from transport. JEL Classification: Q56, C32, F18 1. Introduction Energy accounts for one of the crucial and current issues of the world. It plays a significant role in all political, economic and international contexts. This is because it constitutes the driving force for economic development and the wheels of industry do not turn without it. In fact, ongoing necessity of world community to energy resources specifically in the developing countries on one hand and limitations of its resources on the other hand have coupled its importance. Non-renewable resources specifically fusil fuels are not limitless and with the excessive consumption their end is foreseeable. Therefore, it is inevitable to make a right and prompt decision in relation to energy resources and their consumption. Though, this is just one side of story. Other aspect of non-renewable resources has to do with the environmental pollutions resulting from excessive consumption of energy which in turn has put the world in serious danger. Consumption of various types of fusil fuels produce toxic pollutants. Accumulation of these pollutants in atmosphere over decades has now turned out to be a serious problem. The most important of these materials are greenhouse gasses that have engendered climate change and global warming in the past century. This brought up considerable debate about the probable detriments of global warming and scientific consensuses are of the opinion that greenhouse gasses emission can give rise to serious dangers in relation to climate changes. Therefore, many research have 1 . Dr. Ahmad Assadzadeh, Associate Professor in Economics, University of Tabriz, Email: [email protected] 2 . Dr. Parviz Mohammadzadeh, Associate Professor in Economics, University of Tabriz, Email: [email protected] 3 . PhD student in Economics, University of Tabriz, Email: [email protected] 4 Javad Pourqoly, Lecutere at Tabriz Business Training Center & consultant at East Azerbaijan Industry, Mine and Trade Organization, Email: [email protected] Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 accentuated the the need to reduce the amount of carbon emission inorder to diminish the dangers emanating from the radical change in the environment (Stern, 2008). According to the latest estimation of international energy agency (IEA), 23 per cent of total carbon dioxide emission in the world is attributed to transportation sector. In road transportation, automobiles and trucks cause more that 60% of carbon dioxide emission. This is while in the developing countries with average and low income, cargo trucks and in some cases, even buses burn a lot of fuel and then causes more CO2 in comparison to light vehicles. Many experts predict that if one does not change the strategy, make the investment or adopt required policies, in 2030 CO2 pollutions from transportation sector in the world will reach 3 to 5 time more than 2000 level (Schipper, et al, 2009). Nonetheless, transportation sector as a prerequisite infrastructure of development plays a pivotal role in providing facilities and potential capabilities for the societies. This fact create vital link between different factors of growth and development through the relocation of load and passenger and leads to the rapid and extensive enhancement of countries in different sectors from the economic, social and cultural points of view. For this reason, paying attention to the effective use of energy in the transportation sector and adopting policies to increase its efficiency play a crucial part. There are a large number of empirical studies that stress the relationship between the environmental pollution and economic growth based on time series, unit root and cointegration approaches. In contrast with common studies, this paper applies a GMM5 estimator to examines the dynamic relationship between CO2 emissions from transport, GDP, quadratic form of GDP, Urban population and Gasoline consumption. The paper is organized as follow. Following the introduction, the second section presents the literature review and empirical studies. The third section outlines the methodology and the forth section presents the empirical results. The final section draws conclusions. 2. Literature Review Given the role of carbon dioxide in air pollution and global warming, in most empirical research it is regarded as a factor in environment pollution. Carbon dioxide emission and the phenomenon of global warming have given rise to climate changes. This, in turn, can lead to serious dangers in physical infrastructures, social context of cities and transportation structures (for instance, road, railroad, ports and bridges). Therefore, to show the influence of different factors of energy consumption by urban households and transportation on carbon dioxide emission, it is inevitable to give some explanations as to the impact of city population and city transportation on the environment pollution. 2.1. Urban Pupulation and Environment There are two different points of view in examining the correlation between urban population and environment pollution. The first standpoint refers to the positive influence of urban population due to the utilization of infrastructures, transportation. Furthermore, transition from agriculture to industry gives rise to an increase in environment pollution. But, according to second standpoint, urbanization culture increases awareness and leads to the optimum use of energy in the cities. Therefore, the relationship between an increase in urban population and environment pollution may be either positive or negative (Alam, et al, 2007). As the urban dwellers grow, the pollution incident increase either directly or indirectly. Direct emission result from energy consumption such as electricity, heating fuels, gasoline, and gas. Indirect emission derives from industrial products such as 5 Generalized Moments Method Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 clothing, household appliance as well as services and foods that are used by households (Munksgaard, et al, 2000). Generally speaking, economic development along with urbanization affects consumer’s behavior. Population growth is not merely a stimulus of increase in energy consumption. By altering people’s behaviors, needs and lifestyle it can increase daily consumption as well. Therefore, the policy makers have attempted to enhance energy efficiencies in order to diminish energy consumption by families (Madlener and Sunak, 2011). As a result, the main source of global warming is greenhouse gasses emission. The main reason for their emission has to do with the energy consumption. So, a decrease in energy consumption will result in reduction in the emission. Nonetheless, pursuing the goals of the Kyoto Protocol is to reduce emission may diminish the economic development. To put it differently, the economic development and the energy consumption depends on each other since economic developments coincide with energy consumption (Sari and Soytas, 2008). To explain the correlation between energy consumption and environment destruction Maier and Kent are of the opinion that although extensive use of energy in recent decades has increased average efficiency of production factors. However utilization of energy has entailed environment destruction through its pollutant effects. This is because of the fact that preponderant part of greenhouse gasses emission in the world is in the form of carbon dioxide which results from fusil fuels. Accordingly, energy sector play a significant part in issues related to conditions of environment changes (shim, 2006). 2.2. Transportation and Environment Pollution One of the most important consequences of transportation is its impact on the environment. Such effect can be scrutinized from different perspectives. One aspect of it has to do with the pollutant emissions which cause a change in the weather quality, an increase in the amount of greenhouse gases emissions as well as atmosphere warming. The other aspect relates to the noise pollution which besides creating physical problems causes mental problems as well. It also affects people’s welfare. Furthermore it affects ecosystem and biodiversity. Considering ongoing increase of transportation in cities it is necessary to adopt policy to deal with the detrimental effects of the transportation on the environment. Of the important strategies for decreasing or eliminating dioxide carbon emissions in the transportation sector come as follow. To make use of new technologies in transportation, to develop city and regions, to use public transportation models, to build walking and cycling culture and transportation cost management system, are among strategies which increase efficiency of transportation and traffic and also decrease density and pollution (Schipper, et al, 2009). Developing countries have not strong incentives to give priority to diminish emissions since they are often involved in meeting the basic needs of their people like bread, housing as well as transportation. Yedla, et al (2005) put forward that a decrease in carbon dioxide emission sources in transportation sector of developing countries may be regarded as a byproduct of sustainable development which is an overall goal. Cervero (2001) claims that achieving the goal of sustainable development depends on accurate integrating of energy consumptions strategies in urban households and transportation. For instance, transportation system tends to increases its accessibility and transmission which can lead to growth of dioxide carbon emissions. This, in turn, amount to a potential factor for environmental, societal economical compatibility of cities and through the reduction in production, density and air pollution will result in an improvement of health and life quality. Furthermore Kennedy, et al (2005) came to the conclusion that potential negative factor Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 such as inefficiency of transportation system specifically pollution emissions by vehicles, density and dependence on automobile decrease the life quality of peoples in urban areas. Many researches have been accomplished in respect to weather pollution and energy consumption both in Iran and other countries which most of them have made use of simple and reasonable econometric methods in panel data and time series data. Sayed and Sek (2013) investigate the EKC hypothesis for developed and developing countries using a panel data for the period of 1961-2009. The authors concluded that developed countries have higher turning points of inverted U-shape curve i.e. real GDP per capita while developing countries have higher turning point of inverted U-shaped curve is once SO2 emissions is used measure of environmental degradation. Shahbaz et al. (2012) reported that EKC hypothesis is validated for Pakistan and energy consumption is major contributor to CO2 emissions. Tiwari et al. (2013) investigate the correlation between coal consumption, economic growth, trade openness and CO 2 emissions. This research shows the existence of cointegration for long run between coal consumption, economic growth, trade openness and CO2 emissions in India. Glaeser and Kahn (2010) in a research with a subject of greening the city have examined carbon dioxide emission and city development. According to the results, the lowest amount of carbon dioxide emission concern to the California and The highest rates relates to the Oklahoma and Texas. Furthermore, there is negative and meaningful correlation between emission and land use regulation. Schipper, Fabian and Leather (2009) have studied the influence of transportation on carbon dioxide emission. They came to the conclusion that transport-related CO2 emissions in developing countries make a large part of world carbon dioxide emissions. Heavy vehicles such as trucks burn more fuels and then emit more CO2 than light vehicles. But this can be controlled by developing transportation system in in cities and villages. Dapeng and Yan (2008) in an article have scrutinized the exhaust gas emission control and china’s energy and economic limitations. In this research the situation of exhaust gas emission and its main factors has been conducted through empirical methods. They conclude that for controlling exhaust gas emission in china advanced energy technology plays a key role and to control exhaust gas emission it is pivotal to adjust economic and investment structure to enhance energy technology. Alam, et al (2007) have examined the impact of the decisive factors of environment pollution in Pakistan during 1971-2005. Their study shows that an increase in Gross domestic product and intensity of energy use have augmented environment pollution ( CO2 emissions). SHI (2001) in a study examined the impact of population growth on dioxide carbon emissions in 93 countries with low, average and high per capita income during 1966-1975. The achieved results showed that population growth has been one of the most important factor in dioxide carbon emissions in two last decades. Moreover, it has been estimated that 50 per cent of dioxide carbon emissions until 2025 will be on the grounds of population growth. Furthermore, rising of income levels in these countries has given rise to the increase in dioxide carbon emissions steadily. In a study about decomposition of carbon dioxide emissions from energy consumption in each of the economic sectors of Iran, (fotros and barati, 2011) have scrutinized four influencing factors, namely economic activity, structural changes, diffusion coefficient of carbon dioxide and energy intensity on carbon dioxide emissions. To explain differences in the effectiveness of each of the four factors on the domestic sector, industry, transportation, agriculture and others, they examined Laspeyres Index. The results showed that the economic growth have had the most positive impact on carbon dioxide emissions changes in all sectors including domestic sector. Energy intensity despite having considerable effect on carbon dioxide emissions changes in domestic sector have Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 had frivolous influence on other remaining factors and even sometimes its effect was negative. 3. Methodology and Data The sample is consisting of 18 countries namely: Algeria, Bahrain, Egypt, Iran, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syrian Arab Republic, Tunisia, Turkey, UAE and Yemen for the time period 1980-2012. We collect data from World Bank Development Indicators (WDI, 2013). The dynamic panel data model is valid if the estimator is consistent and the instruments are valid. To examine the existing of EKS, we specify following model: ∑ (1) Where denotes carbon dioxide emissions metric tons per capita. is vector of explanatory variables. is time specific intercepts and is country’s specific effect. Explanatory variables are comprised of: GDP per capita (GDP), square of GDP per capita (GDP2), gasoline consumption per capita (GC), urban population (UP) and CO2 emission from transport. Then Eq. (1) is writhen as follows: (2) Eq. (2) is dynamic because the lag of dependent variable involves as independent variable at right-hand side of equation. Therefore, it is inappropriate to use classic panel data estimator such as fixed effect and random effect. To estimate Eq. (2) we use Arellano and Bond’s GMM estimator. Error! Reference source not found. shows estimation result for Eq. (2). One of consistent estimator to estimate moderate dynamic panel model is Arellano and Bond’s estimator which is based on GMM method. 4. Empirical Results According to the results, the coefficient of square of GDP per capita which is significant at 10 percent level has negative value. Thus, Kuznets type relationship between countries environmental and income per capita does not reject in selected countries. According to the literature, there is a positive correlation between of gasoline consumption (GC) and urban population (UP) with CO2 emissions. However, such an increase can cause environmental problems because of the higher production. Trade policies such as tariffs or setting standards on export and import also impact production, consumption and consequently change the levels of CO2 emissions. The model presents all significant variables. The results show that growth increases with the emissions of energy at initial stage economic development and however, in a mature stage the energy emission tends to decrease. Table 1: Results of the Dynamic Model Independent varaible LCO2,t-1 LGDP LGDP2 LGC LUP AR(2) Prob Sargan test Prob Coefficient 0.44 (2.11)** 1.03 (1.85)* -0.05 (-1.66)* 0.41 (4.62)*** 2.15 (1.95)** 0.84 (0.40) 8.08 (1.00) Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 T-statistics are in parentheses, *** p<0.01, ** p<0.05, * p<0.1 The results from Sargan test of overidentifying restrictions which examines the validity of the moment conditions used in the GMM estimation procedure, no longer reject the null hypothesis that the overidentifying restrictions are valid. Ar(2) is tests for second–order serial correlation in the first-differenced residuals, asymptotically distributed as N(0,1) under the null hypothesis of no serial correlation (based on the efficient two-step GMM estimator). 5. Conclusions The energy is viewed as an engine economic and social developments as well as the quality of human beings. However, stable developments and protection of the environment is subject to appropriate use of energy resources specifically renewable energies. Consequently, by making use of renewable energies, emphasizing on energy efficiency, giving appropriate economic and financial considerations, protecting energy resources and preventing environmental pollutions we need to pursue energy policy in massive scale. The principal aim of this paper was to seek for the linkages among carbon emissions, economic growth, energy consumption, urbanization and globalization in 18 MENA countries during the annual period 1980-2012. The result showed a positive correlation of income per capita with carbon emissions i.e. inverted U-shaped relationship between income per capita and carbon emissions from transport. 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