Exploring the Relationship between Climate Change, Carbon Emissions and Economic Stability

Abstract

This thesis investigates the association between CO2 emissions and primary economic drivers—GDP growth, use of renewable energy, urbanization, and trade openness—over the period 1990-2023 in Pakistan by applying the Auto-regressive Distributed Lag (ARDL) modeling approach. The primary aim is to determine the economic drivers of CO2 emissions and provide evidence-based policy recommendations towards sustainable policy formulation. The estimation reveals a very positive and extremely strong long-run relationship between CO2 emissions and the growth of GDP, which illustrates that Pakistan’s economic growth has been extremely reliant upon environmentally worsening activities like the use of fossil fuel and industrial pollution. The square of the GDP, which would validate the EKC hypothesis, is not statistically significant, indicating that high levels of income have not yet yielded environmental advancement to Pakistan. Among the most critical findings of the study is the statistically significant negative and strong influence of renewable energy consumption on CO2 emissions. The 1% increase in renewable energy usage brings emissions down by up to 5%, which gives evidence of the pivotal role played by clean energy in ensuring environmental sustainability. The short run estimation confirms the same and gives evidence of lagged but robust effects of embracing renewable energy. Urbanization is statistically insignificant to emissions but positive, which suggests that the relationship can be contingent on the control of urban expansion. Trade openness, nonetheless, is observed to lead to increased CO2 emissions because of the carbon-intensive nature of Pakistan’s traded goods and poor environmental policies The research establishes a long-run equilibrium between the variables and a fast adjustment mechanism after shortrun shocks. These findings justify the need for integrated policy to facilitate investment in renewable energy, encourage green urban development, and adopt sustainable trade practices. In the long run, the thesis prefers to adopt a development strategy for Pakistan that provides room for economic growth without compromising on sustainable environmental management.