Energy, income, trade, and environment nexus

India has set ambitious targets for economic growth in the coming decades, which require huge energy supply. At present, India’s energy basket contains about 63 percent of energy generated using fossil fuels. Given the serious concerns regarding emissions of carbon dioxide (CO₂) and other greenhouse gases (GHGs), and the resultant global warming, the country intends to rapidly increase the share of renewable energy in its total energy consumption. This study focuses on the nexus amongst energy, economy, trade, and the environment. It estimates the determinants of CO₂ emissions through empirical analysis, involving the autoregressive distributed lag (ARDL) model, using the World Bank’s World Development Indicators database for 1970–2012. The results of the study show a causal relationship amongst energy, economy, trade, and the environment – both in the long run and the short run. The study suggests an urgent need for increasing the share of energy generated from low-carbon technologies, including energy generation from renewable sources. Steps should be taken to increase energy efficiency by closing the gap between the end-user tariffs and the cost of supply and reduction of wasteful consumption of energy due to losses from pilferage, non-billing, and non-payment; and transmission and distribution. This could contribute to ensuring sustainable economic growth for the country and reducing its CO₂ emissions.