Coal consumption, CO 2 emission and economic growth in China: Empirical evidence and policy responses ☆ Harry Bloch a, ⁎, Shuddhasattwa Rafiq b , Ruhul Salim a a School of Economics and Finance, Curtin Business School, Curtin University, Perth WA 6845, Australia b Institute of Business Administration, Jahangirnagar University, Bangladesh abstract article info Article history: Received 12 October 2010 Received in revised form 11 July 2011 Accepted 19 July 2011 Available online 3 August 2011 Keywords: China Coal consumption Energy conservation Cointegration Error correction model This article investigates the relationship between coal consumption and income in China using both supply- side and demand-side frameworks. Cointegration and vector error correction modeling show that there is a unidirectional causality running from coal consumption to output in both the short and long run under the supply-side analysis, while there is also a unidirectional causality running from income to coal consumption in the short and long run under the demand-side analysis. The results also reveal that there is bi-directional causality between coal consumption and pollutant emission both in the short and long run. Hence, it is very difficult for China to pursue a greenhouse gas abatement policy through reducing coal consumption. Switching to greener energy sources might be a possible alternative in the long run. © 2011 Elsevier B.V. All rights reserved. 1. Introduction The Copenhagen Climate Change Conference came to an end without any concrete commitment or a new accord on greenhouse gas emissions reduction from any of the developed and developing economies. However, with increased demand for energy in develop- ing countries, especially from emerging economies like China and India, studies on identifying statistically significant associations between energy consumption and economic activities in developing economies are worth pursuing. Standard economic theories do not provide any clear-cut answer to whether economic growth is the cause or effect of energy consumption. Studies identifying the relationship between energy consumption and output primarily take two different approaches. The supply-side approach analyzes the contribution of energy consumption in eco- nomic activities within the traditional production function framework (see, for example, Stern, 1993, 2000 and Oh and Lee, 2004a,b). The demand-side approach analyzes the relationship between energy con- sumption, gross domestic product (GDP) and energy prices (often taking CPI as a proxy) in a tri-variate energy demand model (see, for example, Masih and Masih, 1997; Asafu-Adjaye, 2000; Salim et al., 2008 and Rafiq and Salim, 2009). All previous studies in this field follow one or the other of these two approaches and, on that basis, devise energy conservation policies. However, application of both models to a particular country or group of countries provides more robust estimates and more meaningful policy implications. Also, carbon emission is one of the important bi-products of energy consumption. However, studies on demand side have not yet in- corporated carbon emission in their analysis. This paper applies both supply-side and demand-side approaches to Chinese data and com- ments on the possibilities for energy conservation and carbon emis- sion reduction. Since coal is the biggest source of Chinese energy consumption this study focuses on coal in its empirical analysis. Why is China a suitable case study? China has been on the ‘news’ for its spectacular GDP growth as well as high energy demand growth (particularly coal) in recent years. Many economists and social scientists argue that the increased demand for energy from develop- ing countries, especially from China is one of the major reasons for the energy price hikes in recent times. Also, China is blamed for high pollutant emission by the Western countries. Based on the amount and growth potential of demand for coal in the Chinese economy it is now high time to search for the causal relationship between coal consumption and national output (GDP) in China. The rest of the article is structured as follows. The next section presents an overview of the energy consumption profile of China. The third section discusses the range of findings on the relationship between energy consumption and economic growth as well as providing a critical review of the methods used in generating these findings. Section 4 introduces the theoretical framework used in this paper, while a description of data sources and methodologies is presented in Section 5. Section 6 presents the empirical results. Conclusions and policy implications are given in the final section. Energy Economics 34 (2012) 518–528 ☆ Helpful comments and suggestions from two anonymous referees are gratefully acknowledged. ⁎ Corresponding author. Tel.: + 61 8 92662035; fax: + 61 8 92663026. E-mail addresses: Harry.Bloch@cbs.curtin.edu.au (H. Bloch), shuddha0@yahoo.com (S. Rafiq), Ruhul.Salim@cbs.curtin.edu.au (R. Salim). 0140-9883/$ – see front matter © 2011 Elsevier B.V. All rights reserved. doi:10.1016/j.eneco.2011.07.014 Contents lists available at ScienceDirect Energy Economics journal homepage: www.elsevier.com/locate/eneco