Testing the effect of electricity consumption on CO₂ levels in Kuwait: linear vs. non-linear analysis

In this study we test if electricity consumption has asymmetric effects on carbon dioxide emissions in Kuwait, over the period 1971-2018. The study applied the recently developed nonlinear autoregressive distributed lags model of Shin et al. (Festschrift in honor of Peter Schmidt. Springer, New York, 2014) that allows for estimating asymmetric long-and short-run effects. The asymmetric effect was introduced via decomposing the electricity consumption into positive and negative changes. The findings of the nonlinear autoregressive distributed lags model show evidence of asymmetric long-run effect, where the long-run effect of the electricity consumption increase was significantly positive, but the long-run effect of the electricity consumption decrease was not significant. Furthermore, asymmetric short-run effect was found as well. In addition, the modified method of the Granger causality test; namely Toda and Yamamoto (Journal of Econometrics 66:225-250, 1995), shows bidirectional causality between carbon dioxide emissions and both electricity consumption increase and decrease. In view of the empirical outcomes, some policy implications have been drawn. One suggested important implication is moving to use more clean energy sources (wind, solar, hydropower) in electricity production, given that Kuwait has sufficient economic and technological capacity to develop and promote new energy sources.