Int. Journal of Renewable Energy Development 10 (4) 2021: 769-778 Page | IJRED-ISSN: 2252-4940.Copyright © 2021 The Authors. Published by CBIORE 769 Contents list available at IJRED website Int. Journal of Renewable Energy Development (IJRED) Journal homepage: https://ijred.undip.ac.id Examining the Relationship Between Energy Consumption, Economic Growth, and Environmental Degradation in Indonesia: Do Capital and Trade Openness Matter? Nurul Anwar a and Khalid Eltayeb Elfaki a, b * a Department of Economics and Development Studies, Faculty of Economics and Business, Jenderal Soedirman University, Purwokerto, Indonesia b Department of Business Administration, Faculty of Commercial Studies, University of Gezira, Al Hilaliya, Sudan ABSTRACT. This paper examines the relationship between energy consumption, economic growth, and environmental degradation in Indonesia in 1965-2018 with the inclusion of gross capital formation and trade openness as relevant factors. The autoregressive distributed lag model to cointegration, fully modified ordinary least squares, dynamic ordinary least squares, and canonical cointegrating regression approach applied to estimate this relationship. The result of cointegration confirms the existence of a cointegration relationship between energy consumption, economic growth, gross fixed capital formation, trade openness, and environmental degradation. The empirical result, in the long run, indicates that energy consumption, economic growth, and trade openness have a positive relationship with environmental degradation. However, the gross fixed capital formation was found to be negatively associated with environmental degradation. It implies that gross fixed capital formation plays a pivotal role in reducing environmental degradation in Indonesia. The error correction model coefficient indicates that the deviation of CO2 emissions from its long run equilibrium will be adjusted by 0.53% through the short run channel per annum. The findings of this paper propose implementing an energy policy that focuses on energy from environmentally friendly sources. It is also recommended to reverse the effect of openness to the international markets to improve and facilitate access to advanced and environmentally friendly technologies to mitigate environmental degradation and improve environmental quality. Keywords: Energy consumption, Economic growth, Environmental degradation, environmental quality, environmentally friendly technologies Article History: Received: 4 th April 2021; Revised: 19 th May 2021; Accepted: 27 th May 2021; Available online: 2 nd June 2021 How to Cite This Article: Anwar, N and Elfaki, K.E. (2021), Examining the Relationship Between Energy Consumption, Economic Growth, and Environmental Degradation Indonesia: Do Capital and Trade Openness Matter?. Int. Journal of Renewable Energy Development, 10(4), 769-778. https://doi.org/10.14710/ijred.2021.37822 1. Introduction Environmental degradation has been one of the most pivotal challenges facing decision-makers and researchers recently and needs to be addressed. The increasing of carbon dioxide emissions have a significant impact on the greenhouse and are even perceived as the main contributor to the greenhouse effects, thus exacerbating the environmental problems through global warming and climate change (Ozturk and Acaravci, 2010). The escalating CO2 emissions aggravate environmental degradation and increase overall pollution. The environmental costs of economic growth have become a topic of research in different fields and a basic theme of policy arguments at both local and global levels (Koc and Bulus, 2020). The significant primacy of public policy in OECD countries is to focus on the interrelationship between energy consumption, economic growth, and environmental degradation (Ozcan et al., 2020). * Corresponding author: abuarabsk@mail.com The rise of economic growth has led to increasing demand for energy as a major economic factor, followed by growing carbon emissions and global warming, which called for policymakers to take action (Pala, 2020). Many studies attribute the increase in CO2 emissions to energy consumption due to the rapid economic growth (Ahmad et al., 2017; Andreoni and Galmarini, 2016) Hamit-Haggar (2012) stated that studying the relationship between energy consumption, economic growth and emissions is ultimately important to the policymakers to gain a superior understanding of the dynamic relationship between emissions, energy consumption, and economic growth, and to develop efficient energy policies to mitigate human activities that eventually minimize the emissions of greenhouse gases and maintain economic growth. Reducing CO2 emissions without damaging real production would potentially be done by evolving effective energy policies (Dogan and Turkekul, 2016). Research Article