Energy use and carbon dioxide emissions in South Asia

A major threat to climate change in South Asia is escalating carbon dioxide emissions in recent years. According to World Bank data, South Asia accounts for 23% of the world population and contributes only 3% in global gross domestic product (GDP) but is responsible for 29% of the world’s CO₂ emission. In their pursuit of economic growth, the countries of the region have been striving to raise their production, resulting in significant increases in their energy use. On the other hand, the countries have adopted liberalized investment policies with a surge in inflows of foreign direct investment (FDI), suggesting a possible relevance of the pollution haven hypothesis. The use of fossil fuel has escalated nearly seven times, from 4203 trillion Btu in 1980 to 32,994 Btu in 2015 (US Energy Information Administration), and the region has been predicted by environmentalists to become increasingly carbon intensive within a few years without proper policy intervention. This chapter uses the logarithmic mean divisia index (LMDI) method to undertake a decomposition analysis of carbon dioxide emission of six South Asian countries, Afghanistan, Bangladesh, India, Nepal, Pakistan and Sri Lanka, over the period 1980–2015. The objectives of the chapter are first, to identify the role of the major contributing factors in changing emission levels; second, to ascertain whether FDI has any role in raising emissions; and third, to examine the extent to which change in energy consumption patterns can regulate the emissions level. The results show that rise in per capita income has been a major source of emissions in the region. A further decomposition reveals that inflow of FDI per capita had the dominant emission-enhancing effect. However, the interesting point revealed is that higher total investment has been instrumental in lowering emissions. This indicates that the countries eager for rapid economic growth allow less efficient technology and dirty industries of foreign investors to grow within their territory. No significant gainful effect of technology pertaining to emission intensity and energy intensity could be observed. Based on the results, policy prescriptions are also suggested.