UNCORRECTED PROOF JPO 5549 1–12 Journal of Policy Modeling xxx (2006) xxx–xxx Energy consumption and income in G-7 countries 3 Ugur Soytas a,∗ , Ramazan Sari b,1 a Economics Department of Business Administration, Middle East Technical University, Ankara 06531, Turkey 4 b Economics Department of Economics, Abant Izzet Baysal University, Bolu 14280, Turkey 5 Received 9 January 2006; received in revised form 30 January 2006; accepted 6 February 2006 6 Abstract 7 Several industrialized countries have signed the Kyoto Protocol, promising to reduce greenhouse gasses 8 (GHG) emissions. To reduce or mitigate such emissions several policies including reducing energy con- 9 sumption, increasing energy efficiency, decreasing energy intensity and forestation may be possible. The 10 viability and effectiveness of each policy may differ due to country specific factors. This paper tries to 11 assess the impact of a change in energy consumption on income and vice versa in G-7 countries. We employ 12 multivariate cointegration, error correction models and generalized variance decompositions and uncover 13 Granger causality relation between energy consumption and income in all countries. However, the direction 14 of causality seems to differ across countries. This may suggest that although they are at the same level of 15 economic development, different policy alternatives in support of the protocol may be available in each 16 country. 17 © 2006 Published by Elsevier Inc. on behalf of Society for Policy Modeling. 18 JEL classification: Q 43 19 Keywords: Energy consumption; Economic growth; Global warming; Cointegration; Vector error correction; Generalized 20 variance decompositions 21 22 1. Introduction 23 Energy conservation has been in the governments’ agendas due to two main reasons. One reason 24 is the 1973 oil crisis. The crisis started by OPEC’s cutting crude oil production and placing embargo 25 on shipments of crude oil to the Western countries. The outcome of the oil cut and embargo was 26 ∗ Corresponding author. Tel.: +90 312 210 2010; fax: +90 312 210 1243. E-mail addresses: soytas@ba.metu.edu.tr (U. Soytas), sari r2@ibu.edu.tr (R. Sari). 1 Tel.: +90 374 254 1465. 1 0161-8938/$ – see front matter © 2006 Published by Elsevier Inc. on behalf of Society for Policy Modeling. 2 doi:10.1016/j.jpolmod.2006.02.003